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The Ship is Turning, Says Peloton CEO on Q1 2023 Earnings Call



The Ship is Turning, Says Peloton CEO on Q1 2023 Earnings Call

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”Our job one is to ensure the viability of the business, which a year ago was in doubt. And I believe that is no longer the case,” McCarthy said on the Peloton Q1 2023 earnings call

Peloton held its Q1 2023 earnings call on Thursday, and CEO Barry McCarthy reiterated that the ship is indeed turning, a mantra he has maintained as the connected fitness company navigates turbulent waters.

While the turnaround remains a work-in-progress, McCarthy says Peloton’s results demonstrate that the company is making significant progress.

“For the last nine months my goal has been to turn around Peloton and position it for sustained growth and scale. I thought it would take a year. We are beating that timeline,” he wrote in a letter to shareholders.

Here are 5 key takeaways from Thursday’s earnings call:

Fitness as a Service is popular & Peloton is determined to make it work

FaaS is growing quickly, McCarthy reports. “We’re doing an average over the last two weeks of about 175 sign-ups a day. We’ve only just begun leaning in on the web to growth. There’s still unanswered questions about whether or not it will be financially viable for us long-term,” McCarthy said. “But what I’ve learned from the early growth is that we absolutely have to figure out how to make it work for us because it’s enormously popular with users.”

However, the FaaS model will generate slower revenue because rental income will be generated over time as opposed to the outright purchase of Peloton hardware, the fitness brand says. “My Nirvana would be that we see attractive payback in somewhere between a year and 18 months,” McCarthy said.

The chase for 100 million digital app users in 2023 

Peloton’s strategy is to relaunch its digital app in the new year with tiered pricing associated with a new content strategy. “We’re chasing the 100 million digital app users. The current product has never really grown bigger than a million,” McCarthy said.

Peloton also wants to gain access to competitive connected business hardware platforms. McCarthy noted that roughly half of the paid users of Peloton’s digital app have, at one time or another, used Peloton’s content on a competitors’ hardware.

 “We’ve never actually marketed that use case. We’re going to lean into it. The digital app has kind of come at the end of our marketing funnel. We’re going to move it up to the top with a premium offer and try to lean into that growth opportunity,” McCarthy said.

Peloton noted the improvements it has made on its devices and in its digital app. The goal is to provide a deeply personalized experience, which McCarthy believes will lead to an improvement in engagement.

When it comes to leveraging the Peloton brand and content for in-person fitness, either via a franchise model or a partnership with a studio, McCarthy remarked that he believes a digital app is a better go-to-market strategy.  

“I spend quite a bit of time thinking about this. And this is a use case that I’m trying to attack with our digital app. I’d rather sell to you and have you take your digital app wherever you want to take it to engage in our content, could be your home, could be the gym, could be a friend’s house, could be outside when you’re running,” McCarthy said.

The company claims to have a base of satisfied customers for Peloton Guide, but Peloton is aware that brand awareness for the Guide is extremely low when compared to its other offerings. “I don’t think we’ve quite figured out how to market it effectively,” McCarthy stated.

Peloton expects demand for its newly-released Row to continue to grow 

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According to Peloton, its at-home connected rower has been well-received and has been rolled out in a limited number of showrooms.

 “The good news and the bad news about Row is for this fiscal year, we expect to be inventory constrained and they have more demand than we will have units to sell, and we’re working to address those issues,” McCarthy said. He added that he expects demand to continue as consumers are able to experience the connected rower in person.

The private sale of Peloton equipment has led to subscriber growth

The secondary market has led to significant growth over the last year when it comes to subscription activation, Peloton says. “I expect it to be a source of operating leverage for us, and we’re talking about how we can lean into that ecosystem and ensure that it is healthy and viable,” McCarthy said. 

He mentioned people who bought a bike and then it turned into a “potted plant” in their home. “They sold it in the secondary market, someone bought it, and then someone activates a subscription and becomes a monthly subscriber at zero cost to us,” he points out. 

Layoffs are over, CEO assures

On restructuring, McCarthy referenced the recent layoffs at Peloton, which included roughly 500 employees. “We are done now. And in my humble opinion, there are no more heads to be taken out of the business… I want to be clear with our employees about that. We are done. This is the go-forward team.”

Peloton’s CEO also confirmed that the connected fitness brand is in the process of leading the search for a new Head of Marketing.

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