Yesterday, the KeyBanc Emerging Technology Virtual Summit took place. One of the sessions was an interview with Peloton’s CFO Jill Woodworth. She was interviewed by Ed Yruma, Managing Director, Equity Research Analyst at Keybanc. A number of topics were covered in a free-flowing interview. You can listen to the whole interview here on Peloton’s investor website. Below, we’ll cover a few highlights and topics covered in the interview.
New Software Features on the Peloton Platform
The topic of new features came up, and Jill mentioned that Peloton loves adding new features across all the platforms they have, as it gives them more levers to drive engagements. Specifically, she also said that Peloton has “hundreds of features on the roadmap we want to roll out over time.” Their goal is to make the Peloton platform incrementally better over time, and that Peloton has a growing team of software engineers dedicated to designing and building more features.
Long term, the goal is to make the Peloton platform more personalized – which would in term increase engagement.
International Expansion of Peloton
Peloton thinks there is still massive opportunity in international expansion. However, they are already in the 4 largest fitness markets in the world – which account for 50% of gym memberships worldwide.
Due to the vertical strategy Peloton takes (with showrooms, in-house delivery, service, etc), they have to go at the right pace. Moving forward, international expansion might take place at a rate of 1-2 markets a year.
Peloton selects new markets by looking at fitness spend, the number of fitness participants, how much of the existing content library they can leverage, and other factors. She was specifically asked about rumors of an Australian expansion, to which she replied “Australia is certainly of interest but we have nothing specifically to announce today.”
China was also brought up, and as has been stated before, Jill reiterated Peloton does eventually hope to expand to Asia, but it won’t happen in the short to medium term. They know China is a massive market, however, as a media company there are some unique things to deal with before there can be a Peloton China launch.
Lifespan of Peloton Products
This has been mentioned in interviews before, but she mentioned that the goal isn’t to have people on a replacement/upgrade cycle of their products when a new one comes out – for example, upgrading from Bike to Bike+). Instead, they hope the product will last for years and years – hopefully for a decade or more. Rather, Peloton hopes you add additional products to your home- for example, a Bike owner would add the Tread as well. [Not mentioned by Jill, but this might also include the rumored Peloton Rower or potential Peloton Strength Device?]
The caveat with the 10 year lifecycle is that the tablet/video screen might need replacement on a more regular cadence – maybe every 4 years. This is due to software updates and quick advances in technology. [We saw this happen 2 years ago when Peloton announced that they would end software support & upgrades for the 1st gen video screen].
Sales mix of new lower cost Peloton Tread
Peloton is pleased so far with the response & sales of the new lower cost Tread. So far, for early sales in the UK, about 2/3 of the sales of the Tread are going to people who already owned a Peloton Bike, which is what they expected. However, in Canada, the majority of Tread sales are to people who have never owned a Peloton bike before. It was mentioned this could potentially be because the Tread was available in showrooms for a longer time before becoming available for sale?
Jill noted that the when the Tread+ launched in the US, about only 20% of the sales were to people who were brand new to Peloton. Now, about 30-40% are new buyers, so over time, they are able to increase brand awareness for the new products. Peloton expects the same thing to happen in the UK & other markets with the new Tread as well.
Peloton Manufacturing & Supply Chain
It was reiterated that Peloton tries to dual source for both the Bike & Tread products. They know they need to control their own destiny in terms of manufacturing, which was part of the reason behind the acquisition of Precor, so they can have US-based manufacturing capability. However, it was stated 3rd-party manufacturing partners would remain critical for them and that wouldn’t change. After all, “to sell millions of products we need to manufacture millions of products”.
The Precor acquisition lets them fast track to domestically produced products. At this time, a ramp up in Peloton manufacturing in Precor facilities is not scheduled, but they do plan to begin manufacturing by the end of the calendar year.
In addition to Precor, Peloton acquired Tonic, one of their manufacturing partners, at the end of 2019. Since then, they have built a brand new production factory in XinJi. Jill reported that once production is fully ramped up, that factory will have the ability to produce 1.5 million connected fitness devices per year. Production there will start first with the bike, but would hopefully also begin producing the new lower cost Tread in the coming months.
Keeping the Peloton Instructors from leaving
It was mentioned that there is very low turnover for Peloton instructors. Jill replied that it’s a combination of culture + agreements + compensation used to keep the Peloton coaches from leaving to work for competitors. The Peloton culture is one that extends to the growing Peloton instructor team – Peloton wants to be one of the best places in the world to work, and that includes the instructor base. She noted how they have assembled a great “cast” of instructors, a world class team, many who have been with them for years. It was stated how Peloton has multi-year agreements in place with the instructors – and also compensate them well both with cash and Peloton stock/equity.
In addition, Peloton gives the instructors freedom to do things outside of Peloton, as long as it isn’t a direct conflict. For example, Jill mentioned Ally Love’s work with the Brooklyn Nets. They see the relationship between Peloton and the instructors as a symbiotic relationship.