Chief Executive Barry McCarthy is going to an awful lot of trouble to save the sinking Peloton Interactive ship, considering the passengers are already throwing themselves off the decks.
In a shareholder letter Thursday, Mr. McCarthy likened Peloton to a cargo ship whose alarms are sounding. He said he believes he can eventually right the ship with sustained positive free cash flow, despite hundreds of millions in cash burn over the past few quarters. But he also allowed that one’s view of the company depends on where you sit.
Unfortunately, for anyone not sitting on a Peloton bike, things look pretty bad: For the period ended June 30, Peloton said its revenue fell 28% from a year earlier, with connected fitness products revenue down 55%. Net loss totaled over $1.2 billion.
Since taking the helm, Mr. McCarthy has thrown virtually everything at the wall internally, including layoffs, store closures and manufacturing cuts. He has slashed some prices, raised others and began renting out hardware via a bundled subscription model.
Financials aside, the bigger existential threat to Peloton is that even its fiendish fans seem to be tiring of the brand: Average monthly workouts per connected fitness subscription were down 26% on an annual basis and connected fitness churn, reported on a net monthly basis, soared to 1.41% from just 0.73% last year. Ultimately, net connected fitness subscription additions were down 98% on an annual basis. Peloton’s shares, which soared 20% Wednesday on the news the company has started to sell select products on Amazon.com, shed those gains and more early Thursday.
Amazon’s listing language (“sold” and “ships from Amazon”) suggests Peloton at least sold down some inventory—key as Mr. McCarthy on Thursday described the inventory commitments he inherited as posing “an existential threat to the business.” And Peloton did say that Amazon would cover the logistics and costs associated with delivery and in-home set up. But the partnership comes at a price: The company that for years obsessed over its brand image and customer experience has now relinquished control.
Mr. McCarthy suggested Thursday additional retail partnerships could be coming soon. Peloton also has now added a rental model; a lower-priced product in strength-based Guide; a self-assembly option for hardware; and the sale of certified preowned bikes in select markets.
Many of these moves seem aimed at making the brand more accessible. Peloton said Thursday its rental program is only on track to rent something like 30,000 hardware units on an annual basis so far. The company’s update on Peloton Guide included no hard data, noting only that engagement trends are strong.
Peloton has reportedly said there were about half a million searches a month on Amazon for Peloton’s products before its collaboration—a fact Truist’s Youssef Squali suggested Wednesday meant those sales had gone to competitors until now. Had they, though? If you were searching for Peloton on Amazon, you already knew about and likely wanted something from the brand. A Google search would have been sufficient to figure out how to buy it.
The better opportunity now is that Amazon and other subsequent partners get Peloton in front of consumers who are less keenly aware of it. The rub there is that those customers could easily opt for something cheaper. Search generically for “exercise bike” on Amazon, and you see models for under $200.
The other risk is that Amazon browsers who do convert end up being lower-quality customers than the die-hards who bought in early. This is especially important given the recent spike in churn. Perhaps deals like these mean that Peloton is accepting its evolution into a commodity and will sell anywhere it feels can profitably grow.
Even that might be futile. Peloton said Thursday the U.S. market for connected fitness is down an estimated 51% this year. But it isn’t as though all at-home fitness equipment providers are feeling the burn. Select newer competitors like strength-based Tonal are suddenly taking off. Launched in 2018, Tonal already has around 12% market share in terms of mobile and web traffic for connected at-home fitness, Similarweb shows. Apptopia data show Tonal grew its monthly active users by over 200% year over year in July. Including accessories, delivery, set up and the monthly membership, Tonal runs close to $5,000—raising the question of whether Peloton’s problem is no longer about accessibility but about brand.
That is one problem not even Amazon can solve.
This story has been published from a wire agency feed without modifications to the text