Peloton has shifted its business model away from relying on price promotions, says its CEO, who believes its relaunched brand will push it towards growth
CEO Barry McCarthy joined the struggling exercise business, known for its static bikes, in February 2022.
“When I walked in the door, it seemed to me we had a limited number of tools in the toolbox in order to grow the business, and price promotion was about the only thing we had as a commercial business,” McCarthy said, speaking to investors on a call today (23 August).
He asserted the business is now much less dependent on price promotions and has “a lot of irons in the fire” to drive growth. The CEO was upbeat despite a 20% plunge in its share price following its results as the company reported higher-than-expected losses per share.
Its losses per share for its fourth quarter 2023, ended 30 June, were $0.68 (£0.53). This is significantly lower than the same period in 2022, when losses per share were $3.72 (£2.93), however, expectations had been that losses per share for Q4 2023 would be just $0.38 (£0.30).
Despite the share price drop, McCarthy asserted he had “never been more optimistic and excited about the future of the business”, stating there is a “big disconnect” between stock price for Peloton and the “energy” in the company at this moment.
The company has many tools at its disposal, he said, including a relaunched brand. He hailed the work of CMO Leslie Berland, former Twitter CMO who was appointed in January, and her marketing team as being “spectacular”.
Berland is leading a transformation of the Peloton brand, which aims to engage with a younger audience, more novice fitness enthusiasts, and shift perceptions away from the brand being solely a stationary bike company.
Speaking in May, Berland told Marketing Week that Peloton’s relaunch of its brand was a “critical part” of its growth strategy.
“When we looked out into our future and where we want to be in the future chapters of the company, this was so foundational and fundamental that it really was priority number one,” she said.
While McCarthy noted it was still early days for the relaunch, he believes the messages about Peloton’s full offering, which includes a fitness app as well as equipment, were “absolutely landing”.
“We’re already seeing meaningful positive shifts in perception across a range of measures, including gains among Gen Z and consumers who are just beginning their fitness journeys,” he stated.
He also talked up the potential of partnerships between Peloton and third-parties. In July, it announced a partnership with Liverpool Football Club, which includes providing bikes at the club’s training ground and LFC-related digital content on the brand’s platform. With these partnerships Peloton hopes to “grow awareness and understanding for [its] platform with fitness-minded consumers”, McCarthy said.
While the CEO was upbeat about the potential of these initiatives, he would not been drawn on how they would impact the business, which has struggled post-pandemic to return to growth.
“For the most part we have no operating history with these new initiatives which means we don’t know how to model their impact on our growth,” he said.
In its full fiscal year 2023, Peloton saw operating losses of $1.2bn (£944m). It generated revenues of $3.6bn (£2.8bn) in the year.
It ended its final quarter with 4% year-over-year subscriber growth for its app, but saw a 29,000 decline in users quarter-over-quarter, something it attributed to a slowdown in hardware sales and higher than anticipated churn.
McCarthy asserted that Peloton is a “seasonal business”.
“The slowdown exceeded our expectations through May and through the first three weeks of June as consumer spending shifted toward travel and experiences. Then eight weeks ago the trend reversed itself, and we began to see a reacceleration in hardware sales,” he said.
However, he admitted to investors he didn’t know what factors were driving the reacceleration.
“I wish I did [know],” he admitted. “If I did, we could lean into it and try to leverage it.”