A Peloton investor presentation – used last month as the company tried to raise money – indicates that Peloton are more publicly positioning themselves as a software company rather than a hardware company.
Just last month Peloton secured a $750 million loan from creditors, following their Q3 earnings call during which they reported larger than expected losses for the quarter. The May 2022 lender presentation includes interesting details about Peloton’s plans for the future as they try to stabilize the company’s standing.
On page 31 of the deck, Peloton outlines the core management team that is tasked with “driving turnaround,” noting that they will be adding to this team in the future as they transition priorities. They also make clear they are trying to focus more on software than hardware:
Other talent additions expected across the org in the coming months, particularly as we shift our focus from being hardware to software-centric.
The current team includes new CEO Barry McCarthy, as well as Peloton’s new Chief Supply Chain Officer and Chief People Officer.
Interestingly, co-founder and Chief Technology Officer Yony Feng is not included among the core management team. He is also no longer listed on the Peloton website. According to Yony’s LinkedIn profile, it appears he stepped away from the company earlier this year. It does not appear as though Peloton has named a replacement for the CTO position – at this point it isn’t clear if Peloton is quietly running a new executive search for a new CTO, or if the position will go away.
This shift from focusing on hardware sales to software sales aligns with what McCarthy has been saying – and doing – since taking over the CEO role. The One Peloton Club, which launched in March in select markets and essentially allows new members to rent a Peloton Bike and bundle the cost of the Bike with the monthly subscription fee, is an example of this shift. Peloton is essentially giving up margins on hardware in order to bring in new subscribers.
McCarthy has continued to stress the software focus in recent weeks. At J.P. Morgan’s Global Technology, Media and Communications Conference last month, he explicitly stated:
“I don’t care about Connected Fitness or gross margins, just to be clear, couldn’t care less. I care only about lifetime value, how much we spend in marketing to acquire a subscription and how much that subscription is going to generate for us in profit over their lifetime.”
At the same event he also specifically addressed the notion of giving up hardware margins in order to entice new subscribers:
“If I have to sacrifice hardware gross margin in order to accelerate the growth of the business and generate more profit dollars at a lower margin, I’ll generate more profit dollars for sure. And the embodiment of that strategy is what we call the one Peloton fitness-as-a-service, right? We’re — basically, we’re giving away the hardware and making it back on a monthly basis for a higher monthly fee than we charge for all-access. And it’s all about managing for accelerated growth and the lifetime value.”
McCarthy also discussed an increased focus on the Peloton App, which allows users to access Peloton content without any hardware (such as the Bike or Tread):
“We have always prioritized the $39 a month all-access subscription in comparison to the digital app. And we have never used the digital app to create awareness for the all-access product. But I think that’s a strategic mistake, and we’re going to try to invert the model. And the marginal cost of the digital app are de minimis. And so, it enables us to be able to think about a freemium-like product to drive the top of the marketing funnel to significantly broaden the flow to drive faster growth in all-access. And so, we’re in the process of rethinking our go-to-market strategy there.”
Essentially the goal would be to bump up Peloton App members to All-Access members. Peloton increased the All-Access monthly membership price for the first time ever earlier this month.
Though focusing more on software over hardware is definitely a major shift for Peloton, it is important to consider the challenges they’ve had recently with Bike, Bike+, and Tread sales. Peloton has gone back and forth numerous times both increasing and decreasing the pricing of their hardware. In addition, they temporarily paused production on new Bikes, Bikes+, and Treads earlier this year to allow time for orders to catch up with what they already had in inventory. Lastly, the Tread+ has not been available for purchase since last year’s recall, and there is no word on when it will be sold again.
You can view the complete May 2022 investor presentation here.
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