No-one can accuse Peloton’s boss of not sweating the asset, but as the ‘connected fitness’ brand reported disappointing quarterly losses it also warned of worries that cash-strapped consumers may balk at buying its expensive hardware this holiday season.
On top of that, Peloton is also experiencing high churn for paid subscriptions despite working hard to retain users and attract new customers.
The company reported a net loss for the three-month period to Sept. 30 of $159.3 million, representing 44 cents per share, off revenue of $595.5 million. That compares with a loss of $408.5 million, or $1.20 per share, a year prior, when sales were $616.5 million.
Peloton estimates fitness subscriptions to be between 2.97 million and 2.98 million, a tad off analyst expectations, and forecast for the full year paid app subscriptions would drop 6% and revenues 2% to between $2.7 billion and $2.8 billion, broadly in line with Wall Street predictions.
But the heart of Peloton’s problems is less with subscribers — at $415 million subscriptions significantly out-earned hardware sales of $180.6 million — but whether hard-pressed customers will buy new equipment during the crucial holiday season, despite the expected relaunch of its Tread+, which it recalled in 2021 amid reports of multiple injuries.
Peloton’s Hardware Woes
At just shy of $6,000, CEO Barry McCarthy is aware that Tread+ comes with a big ticket price at a time of economic uncertainty, although he said at the earnings call that the original release garnered committed fans “absolutely over-the-top, fanatically obsessed about the user experience.”
In fairness, it’s not all gloom and Peloton had reason to point to some of its initiatives proffering the possibility of a clearer road ahead.
Notably its rental service ended the quarter with 54,000 U.S. and Canadian subscribers, which its expects to reach 75,000 by the end the year, with rentals for the quarter representing one in three bike sales.
However, it takes up to 20 months to start turning a profit on rentals so, despite the opportunity, it has to find a way to monetize that growth. Similarly, the introduction of a free membership tier intended to encourage paid subscription conversions is yet to produce the desired results.
Peloton has also been linking with other sports-related businesses to try and bolster engagement and its users, notably a five-year tie-up with athleisure giant LuluLemon, with Peloton providing fitness content to the latter’s exercise app and its 13 million members after the apparel brand finally dumped Mirror. Again, the challenge will be to convert free users into paid subscribers.
The company has also agreed a high-profile partnership with the NBA and WNBA, adding to exisiting deals with English football club Liverpool, the University of Michigan and the New York Road Runners and is likely to sign more such deals and partnerships.
Tough Ride Ahead
Of course it’s a much tougher ride than when Peloton owned the pandemic home fitness boon and saw its hardware sales and subscriptions soar as fitness buffs and frustrated cyclists took their boredom out on exercise bikes in lounges, bedrooms and garages up and down the U.S.
What looked like unstoppable pedal power in 2020 has quickly turned into a steep uphill climb since to keep subscribers and sell new products and the multitude of strategies represent McCarthy’s aim to boost membership and commensurate profits.
Hardware problems and product recalls have not helped the cause and McCarthy needs to find a way of getting the tire to the road. Early trading saw the market respond positively to his initiatives, up between 15-20% on opening. But that still means Peloton’s stock price is over 30% down on the start of the year and, compared with its peak, well that graph is not for the faint of heart.
However, after LuluLemon conceded expensive defeat on Mirror, the opportunity for growth has opened up a little and Peloton’s boss is clearly hoping to peddle the pedals this Christmas in a bid to prove the turnaround is gaining traction.
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