The path to the promised land is the app, says CEO Barry McCarthy
The odds have been stacked against Peloton for quite some time, and all along, Peloton CEO Barry McCarthy has maintained confidence in the connected fitness brand.
He emerged from retirement, where he was spending time golfing and riding his Peloton, until reaching out to one of Peloton’s earliest investors and said, ‘Hey, Coach, put me in. I can fix this.’
He told the New York Times that joining Peloton as CEO was like a “shotgun marriage.”
Like a shotgun marriage can be, it has not been easy.
The water has been rough and unforgiving at times, but the captain has long promised the ship has been turning. There has been a lot of talk of ships, including a personal story McCarthy shared in the closing of a letter to shareholders last August. In the note, he recalled a memory when he worked on a cargo ship as a young man. He compared the ship’s rough ride to that of Peloton.
“We’ve sounded the alarm for general quarters. Everyone’s at their station. We continue to add new inputs to evolve our go to market strategy to restore growth. When will the ship respond is the question. Our goal is FY23,” McCarthy wrote in response to its $1.2B loss in Q4.
Now, McCarthy is celebrating his one-year anniversary at Peloton.
“If you’ve been wondering whether or not Peloton can make an epic comeback, this quarter’s results show the changes we’re making are working,” Peloton’s leader penned in a letter to shareholders.
While Peloton is still a work in progress, the fitness giant says its recent results prove it’s experiencing a turning point, and is focusing on its continued recovery.
Here are some key highlights from the recent Peloton Q2 2023 earnings call:
A salute to Peloton’s diehard community & beloved instructors
In an unusual move, McCarthy opened the Peloton Q2 2023 earnings call with a nod to the ever-devoted community of Peloton members. Before launching into numbers and business data, Peloton’s CEO asked listeners to indulge him for a moment, and shared a summarization of what his good friend suggested was so special about the connected fitness giant.
“She described the brand as golden and the members community as platinum. And what makes that possible is incredible work done by our content team and by the instructors who give it life,” McCarthy said, before welcoming back London instructor Leanne Hainsby.
The Peloton instructor, 35, recently revealed she has been battling breast cancer, and hosted her first cycling class since returning to the connected fitness platform.
As for the member community, Peloton reminded its followers of its mega-reach in a marketing email recapping 2022’s fitness efforts. According to Peloton’s data, its members spent 250,958,345 hours working out, cycling a total of 1,611,636,736 miles; walked or ran a total of 75,115,478 miles, and gave a total of 594,510,102 high fives on the leaderboard.
Consumer behavior has changed…but it’s unclear
“We outperformed in the quarter. The good news is we outperformed,” McCarthy said. “The bad news is the accuracy of our forecasting, our ability to forecast the business and particularly given the many changes we made in the business model is not as highly evolved yet as it will be.”
The Peloton CEO went on to say in the Q2 2023 earnings call that it’s likely a mix of the changes made in the model and that the consumer behavior has changed, but that Peloton still doesn’t quite have their arms around consumer behavior.
“There’s some new normal that’s happening, and I don’t feel like we’re quite grasped what it is,” he said.
One thing is clear, though: FaaS is a positive path forward, as Peloton has generated more revenue from subscriptions than hardware sales for the third consecutive quarter.
Even with such a dramatic pivot from what started as a hardware-based brand, Peloton is embracing what it believes will be the continued trend, and says it represents a structural shift.
All in on the app
On the subject of Peloton’s app, “I think of it as its own end game,” McCarthy said.
The end goal, he says, is to reach a user base that Peloton has been unable to access, and to expand its reach with its content and instructor-led experiences, and enable consumers to use Peloton’s content on competitive hardware.
“Maybe we’ll see the all-access subscription hardware business or maybe not, I don’t really care… the path to the promised land is the app, I think. At least, that’s how I conceptualize it, and that’s the opportunity we’re trying to pursue,” he added.
The connected fitness brand has set a goal to attract at least one million prospective members to trial the Peloton App.
Layoffs are over
While there was a significant reduction in the Peloton workforce in the past year, McCarthy stated on the Q2 2023 earnings call that the fitness company is done with headcount reductions.
“Let me reaffirm that to all of our employees who are listening on the call,” he said, before adding that Peloton has significant opportunities for additional expense reduction and that he expects that they will be realized in the next one or two years.
“We still have a lot of inventory, and we pay a lot of money in storage costs,” McCarthy shared. “And as we work down our inventory positions, we have substantial additional savings to be realized by limiting those storage costs just as we have in the past year.”
Restoring international growth – TBD
When asked if the connected fitness brand plans on restoring international growth or entering new countries, to put it simply, Peloton is still figuring it out.
“I would like to enter new countries, probably Western Europe first. But I don’t know when, and I don’t know how much we would spend doing it. And I hope to have the answer to those questions in the next three months, but we just don’t have it today,” McCarthy answered.
The future of Precor & the Peloton Output Park
“You know, the worst kept secret on the planet is that we’ve been exploring the sale of Precor,” McCarthy joked.
Peloton says it came close to selling Precor, but the price the buyer was willing to pay dramatically dropped, leading Peloton to exit the deal.
“I mean, at some point, it crossed as a stupid line to the point where you’re just not willing to dance anymore. And that happened for us,” McCarthy described.
He admits that for all the time Peloton has owned Precor, the brand has done nothing to invest in the performance of business – and to its own detriment – but has planned to “reverse course.”
“I think we understand how to add some incremental value without great expense and have a disproportionate increase in the value of the business. And the overarching strategy would be run Precor for the benefit of Precor and to not dilute those efforts for the benefit of our own operating business. Run it as a freestanding subsidiary. And so, that’s the path we’re on,” McCarthy said.
As for the expected 2022 sale of the Peloton Output Park facility in Ohio, Liz Coddington, CFO, said that the process became delayed, but that Peloton is hopefully to sell it by the end of the year.
“It’s literally just taking us longer,” she said. “Now, end of the fiscal year is not guaranteed, but that is our goal.”
The reach of the Rower
Demand for Peloton’s latest hardware, its connected fitness rower, outperformed expectations over the holiday season, but there is still more work to be done.
“It is a newer product for us and, you know, awareness outside our Peloton member base. We’re still building that quite a bit,” Coddington shared.
Courtney Rehfeldt has worked in the broadcasting media industry since 2007 and has freelanced since 2012. Her work has been featured in Age of Awareness, Times Beacon Record, The New York Times, and she has an upcoming piece in Slate. She studied yoga & meditation under Beryl Bender Birch at The Hard & The Soft Yoga Institute. She enjoys hiking, being outdoors, and is an avid reader. Courtney has a BA in Media & Communications studies.