The Q4 2024 earnings call revealed that Peloton is undergoing a strategic review of its pricing, both in hardware and subscription services.
However, major decisions regarding pricing appear to be on hold until the company’s new CEO is in place. This approach signals that while Peloton is focused on improving margins, a major shift in subscription costs is not imminent.
Interim Co-CEO Karen Boone addressed Peloton’s focus on its hardware business in the latest earnings call. She emphasized the need to improve margins for Peloton’s premium connected fitness products, such as the Bike, Tread, and Row. While Boone acknowledged the success of expanding into third-party distribution channels, she highlighted that further optimization is needed. This includes evaluating product pricing models and discounting strategies. According to Boone:
“Turning to our hardware business. We are focused on delivering gross margin improvements for our premium Connected Fitness products. We have been pleased with the introduction and expansion into third-party distribution channels, both in North America and in our international markets, but are doing work to optimize the economics of these channels. This effort includes evaluating certain product pricing models, discounting strategies and the way we deploy media dollars.”
Boone also mentioned that the hardware margins have significantly declined over the past few years and that the company is working to restore them. Peloton plans to adjust unit economics for its different product lines, reduce promotional activities, and take a more targeted approach across international markets where Peloton is heavily reliant on third party vendors.
Despite analyst queries, Peloton has not indicated any immediate plans to raise subscription prices. Boone noted that while the company sees great value in its subscription offerings, especially with new features like the upcoming Strength+ app and increased adoption of the Tread, there are no current plans to increase subscription fees.
However, Boone hinted that as Peloton continues to deliver more value through new experiences & features, pricing adjustments may be considered in the future. Speaking about Peloton’s current subscription price, Boone said:
“We do think it’s a great value. And as we do deliver more value with some of these experiences we’re talking about, something we might consider in the future. But at this point, we don’t have any plans for that. On the hardware pricing front, it’s easier to think about what we might do in certain markets, especially where the penetration of third parties such as international is more significant.”
Boone went on to close her remarks by reiterating that there are no plans in the “immediate future” for a subscription increase:
“So it doesn’t mean that we won’t ever entertain a subscription price increase, but it’s not something that we’re planning for any time in the immediate future.”
Chief Financial Officer (CFO) Liz Coddington reinforced that any changes in subscription pricing would likely be driven by the company’s evolving strategy over the next fiscal year. For now, Peloton remains focused on refining promotional strategies and ensuring the sustainability of its financial targets.
One significant factor contributing to the cautious approach regarding subscription pricing is the leadership transition at Peloton, following CEO Barry McCarthy’s departure earlier this year. Boone indicated that a subscription price increase is a “one-way door” the company would not go through without a permanent CEO in place. As Peloton’s search for a new CEO continues, the company is focused on more straightforward decisions aimed at improving margins and reducing costs. As we previously shared, Peloton expects to have their new CEO in place in the next 3 months.
In the meantime, Peloton has scaled back its marketing spend and is being more judicious with its overall budget. The company is making more immediate decisions that have short-term impacts while leaving larger, more impactful changes – such as subscription price adjustments – for the new CEO to address.
It is worth taking the discussion surrounding potential subscription price adjustments in context with the number of subscribers. In Peloton’s most recent quarter, the company reported 2.98 million paid connected fitness subscribers and 0.62 million paid app subscribers. However, their forecast for Q1 of fiscal year 2025 indicates a drop in hardware subscriptions, with connected fitness subscriptions expected to fall between 2.88 and 2.89 million and app subscribers anticipated to range between 0.56 and 0.67 million.
Looking ahead to the end of FY 2025, Peloton is projecting further declines, with connected fitness subscriptions potentially dropping to between 2.67 and 2.75 million, and app subscriptions stabilizing or decreasing slightly to between 0.57 and 0.62 million. This projected decline is linked to potential pricing changes as Peloton evolves its strategy throughout the fiscal year. The company hinted that if they decide to raise subscription prices, it could further impact subscriber numbers, contributing to the decline they’ve forecasted – but possibly still leading to more overall income.
Coddington addressed that specific point:
“If you look at our guidance for fiscal ’25 for subscribers, it does suggest that we are going to be declining in subscribers, and the range is pretty broad. And the reason for that is that as we evolve our strategy over the course of the fiscal year, we may make changes to pricing. Karen alluded to some things that we’re thinking about there. We’re evolving our promotional strategies and that we may also pull other levers to achieve our financial targets.”
The last time Peloton adjusted their subscription pricing for the All Access Membership – required with the purchase of any hardware device – was in 2022. In regards to the digital app, Peloton introduced their app tiers in 2023, breaking out pricing from the existing standard monthly price.
While the immediate future won’t see drastic changes in subscription fees, the possibility remains on the table. For now, members can expect stability in subscription costs, but we will of course share any updates as they become available.
You can read a full overview regarding Peloton’s Q4 2024 earnings via our recent article, and catch up on any news you may have missed, such as the imminent announcement of a new CEO.
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