In Peloton’s latest earnings call, the company shared insights into its app subscription performance, revealing slower growth than anticipated. The revelations have prompted Peloton to adjust its outlook for the year and reevaluate its app strategy, with potential implications for members down the road.
Peloton reported 674,000 paid app subscribers at the end of the quarter; a net reduction of 44,000 users. This marked a departure from their forecasted growth trajectory. The underperformance was attributed to several factors, including lower-than-expected additions, particularly in the Peloton for Business channel, and softer trial demand. In case you missed it, we recently shared that Peloton was ending their free app tier and making the free app trial only seven days.
Additionally, higher-than-expected Average Monthly Paid App Subscription Churn of 9.2% added to the challenges, primarily driven by subscription cohorts transitioning from legacy pricing. As a reminder, when Peloton announced their new app tiers last year, existing App users were given App+ during a “legacy” period before they were migrated to the App One tier at the start of 2024.
This has caused Peloton to lower their projections for new app users. According to the latest earnings letter:
“We’re also lowering our outlook for Ending Paid App Subscriptions by 150 thousand, or 19%, at the guidance midpoint to 605 thousand. Our Paid App Subscription guidance reflects lower gross additions due to expectations that Q3 trends continue through Q4. We are maintaining our disciplined approach to App media spend as we evaluate our App tiers, pricing, and refine the Paid App subscription acquisition funnel.”
Despite the decline in Paid App Subscriptions, Peloton noted a 2.4% increase in app subscription revenue, driven by growth in premium App+ subscriptions. However, the company acknowledged the need to reassess their approach to subscriber acquisition and retention, prompting a holdback on any further media investments as they evaluate tiered pricing strategies and the subscriber acquisition funnel.
This is significant because it suggests that further changes could be coming to Peloton’s existing app tiers, which could impact current users. Chief Financial Officer (CFO) Liz Coddington specifically mentioned on the latest earnings call “looking at pricing, looking at our tier structure.”
This followed her saying they will be “actively evaluating our app tiering strategy.”
Coddington also highlighted key learnings from the recent performance challenges. Despite subscriber declines, Peloton observed an uptick in App+ tier selections, contributing to the quarter-over-quarter revenue growth. Coddington emphasized the company’s ongoing efforts to improve the app’s conversion rates and invest in innovation.
Interim CEO Chris Bruzzo echoed Coddington’s sentiments, emphasizing Peloton’s disciplined approach to learning and adaptation.
Ultimately, in spite of these challenges, the app remains a vital piece of Peloton’s offerings. According to Coddington:
“We still believe in the app. The app is an important part of our Peloton fitness experience and platform.”
If you are unfamiliar with Peloton’s app tiers and the distinctions between them, our article from the time of the announcement contains a comprehensive overview.
You can catch up on all the news from Peloton’s latest earnings report and corresponding investor call – including CEO Barry McCarthy stepping down and the layoff of 400 Peloton employees – via our site.
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I’m on the verge of giving up the app anyway with the current cost of living crisis its a luxury that many cant afford. If they mess me about or put up the price I’m out and selling the bike
are you real?