Peloton Projects Loss in Subscriber Base, Looks to Partnerships To Create Consumer Relevance

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Peloton Looks To Partnerships To Create Consumer Relevance
Peloton Looks To Partnerships To Create Consumer Relevance

Peloton announced on Wednesday, August 23, 2023, that it experienced losses surpassing predictions and a decline in new quarterly subscribers. 

The company attributed these outcomes to the recall of its bike seat post and the influence of seasonal trends, which includes members pausing their subscription to travel and partake in summer activities. 

In the quarter, the company recorded a net loss of $241.8 million and revenue of $642.1 million, down from $678.7 million the year before.

While the outcomes did not come as a surprise, as CEO Barry McCarthy had warned in May about significant growth challenges in the fourth quarter, the company projected a decline in subscribers for the first time.

“Peloton’s FYQ4 performance is a reminder we operate a seasonal business,” said McCarthy in a statement. 

With that in mind, the company concluded the quarter with a subscriber base of 3.08 million, reflecting a 4% increase compared to the previous year. However, there was a decrease of 29,000 subscribers in comparison to the last quarter. Peloton attributed this decline to a seasonal reduction in hardware sales and a churn rate that surpassed expectations.

Additionally, Peloton noted that the recall of its bike seat led to a greater customer attrition rate than initially anticipated, reaching 1.4% for the quarter. The company speculates that approximately 15,000 to 20,000 individuals temporarily suspended their monthly subscriptions during this period, anticipating the replacement of their seats.

The recall, announced in May 2023, had repercussions for more than 2 million bikes the company had sold since January 2018 and incurred a cost of $40 million for the quarter, surpassing Peloton’s initial projections, as emphasized by McCarthy.

To date, the company has received 750,000 requests for replacement seat posts. Of these requests, Peloton has so far resolved 340,000 cases and anticipates completing the remaining open cases by the end of September 2023.

Moving past Peloton equipment recalls

As the fitness company moves forward and looks to engage customers who are less likely to invest significant sums in a stationary bike or treadmill, the company has launched a rental program that offers certified refurbished options. The rental service, introduced recently in Germany, has already attracted more than 48,000 subscribers. Furthermore, the refurbished product line reportedly achieved 6,500 sales during the quarter.

In May 2023, the company also unveiled a variety of fresh pricing tiers for its fitness app, incorporating an entirely free membership option, along with subscription levels priced at $12.99 and $24 per month. Through the app, users can partake in Peloton’s fitness classes and craft personalized workouts from wherever they are, including their gym.

Through these initiatives, on the call, Peloton highlighted that it has identified positive shifts in perception across several demographic groups. This includes increases among Gen Z consumers and individuals who might be older but are new to fitness. Furthermore, there is a distinct change in the demographic makeup of new app users, with a noticeable trend toward men, Gen Z, as well as Black and Hispanic consumers.

Alongside its rebranding initiatives, McCarthy noted during the call that Peloton will soon offer an array of limited-edition bike frame colors and graphics, catering to both consumer and commercial markets.

Furthermore, Peloton is increasingly embracing its business-to-business (B2B) strategy to bolster revenue generation and entice new clients. On Thursday, August 17, 2023, Peloton revealed the launch of “Peloton for Business,” a B2B solution designed to cater to customers “anytime and anywhere.” The product is described as a comprehensive compilation of B2B wellness solutions customized for corporate clients, encompassing seven key sectors, including hospitality, corporate wellness, multifamily residential, education, healthcare, gyms, and community wellness. 

Furthermore, Peloton has initiated a distinctive collaboration with NCAA Division 1 schools. The first of these efforts is a partnership launched last month with the University of Michigan to offer students, athletes, and alums new fitness experiences. Co-branded Peloton Bikes will replace existing aerobic bikes on the football sidelines at Michigan’s Big House stadium, and jointly branded bikes will also be incorporated into various Michigan Athletics training facilities.

Furthermore, Peloton is set to offer sponsorships that encompass Michigan student-athletes within an extended name, image, and likeness (NIL) campaign, aiming to enhance brand visibility and inspire student engagement in fitness pursuits. The Peloton x Michigan collaboration will also include fitness guidance, co-branded content, and in-venue interactions across a range of sports teams.

“We are thrilled to deliver this first-of-its kind partnership that brings together two incredibly passionate and loyal audiences – our dedicated Michigan fans and the devoted Peloton community,” said Jennifer Cadicamo, vice president and general manager of Michigan Sports Properties. “We look forward to working with the leader in connected fitness to connect Peloton to Michigan students, alumni, and fans.”

Photo credit: Peloton

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