Peloton’s CFO Jill Woodworth was interviewed during Barclays Global Technology, Media and Telecommunications Conference this morning. Deepak Mathivanan of Barclays was the host, and asked a number of questions to Jill on a wide number of topics. Topics included the growth of Peloton, supply chain / delivery issues, product upgrades, pricing, international growth, and more.
The first topic covered was around how Peloton would approach 2021, knowing 2020 had some unique factors that fueled Peloton’s growth. Peloton believes that 2020 simply accelerated a trend, and condensed the timeline, of a trend that was already going to happen – and that is the transformation of fitness from the gym to the home. Part of that rapid acceleration caused an unpredictable demand curve, and Peloton is looking forward to getting back to more predictability. Jill mentioned how the new lower cost Tread will be released next year, and with that, believes that the market size they are able to capture for their Tread will eventually be 2-3 times that of the bike.
The topic then turned to supply chain issues, as well as order backlogs. Peloton notes they hope to continue to leverage 3rd party manufacturing partners, like Rexon. She noted that the new Tonic factory (who Peloton acquired last year) is on track to open by the end of the year. However, she specifically noted that this new factory wouldn’t necessarily immediately fix short term supply issues. It is more of a medium to long term improvement, as it will take time to build their production lines and ramp up production for both the Bike and Tread.
For other long term supply chain fixes, Jill mentioned that Peloton is researching several ideas. One is looking at the potential for more stateside production and assembly, which would help resolve some of the port delay issues. Peloton believes that some of the ocean freight delays are here to stay as more shopping moves online, thus the research into stateside production. Other ideas are using more 3rd party manufacturers to allow them to flex capacity, as well as potentially building an additional factory on Tonic’s campus. Jill again noted that they hoped to get back to normal delivery windows “over the next couple of quarters”.
Jill was then asked whether Peloton had any plans to get into a more regular release & refresh of Peloton hardware, much like Apple does with their regular yearly updates. Her reply was that Peloton builds their bikes (particularly the frames) with a goal of them lasting 7-10 years. It was noted that touchscreen technology evolves rapidly so the video screens probably had a 3-4 year lifespan, but noted the “at-cost” upgrade they recently did for generation 1 monitors. She wrapped it up by saying that she didn’t currently see Peloton taking the approach of regular hardware updates, instead focusing on building items that last.
Next was the topic of pricing, and whether Peloton would experiment with price changes to the $39/month price point for Bike & Tread users, to try to improve profitability. Jill replied that Peloton loves the $39 price point, and “it is kind of sacred” to them. They want it to be an undeniable value, and would rather try to increase the value. She stated that Peloton currently does not have any plans at this juncture to raise that price.
The conversation then pivoted to Peloton Digital. Jill reiterated what has been said on earnings call before, and said that the digital fitness ecosystem has much lower margins, lower barriers to entry for competitors, and higher churns of members. Not specifically mentioned was their newest competitor, Apple Fitness+. Due to all of this, Peloton looks at their digital membership platform mainly as a sales funnel to try to convert people to upgrade to the Bike & Tread.
Finally, Jill was asked about Peloton’s plan for international growth. She replied that the global opportunity is massive, and there’s a number of different ways Peloton can grow, so they have to optimize and prioritize – as each of the international markets Peloton has entered so far has taken a tremendous amount of effort. Jill noted that the four markets Peloton is in (US, Canada, UK, Germany) cover around half the worlds population that goes to gyms. She noted that after Germany, some of the market opportunity drops off, so Peloton is brainstorming how they might be able to deliver the Peloton experience in some new markets, without all the components of their usual fully integrated model (sales, showrooms, delivery, service, etc). This might mean a direct to ship model instead of showrooms, leveraging 3rd party logistics, and other ideas. Jill said that at most Peloton would likely enter 1-2 new international markets every few years. However, she noted that Peloton might try expanding the languages content is available in, ahead of their actual physical expansions to the market. They could then try to drive uptake through Peloton Digital in those markets.
Jill wrapped up by saying that Peloton is 100% focused on growth right now, as they try to keep their first mover advantage.
A recording of the interview should be available for 90 days on Peloton’s investor website here.
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