This morning, Peloton kicked off their FY 2025 Q1 earnings report with the announcement of Peter Stern as the new Peloton CEO. He will start the position effective January 1, 2025.
He has been a Peloton member since 2016, and his past experience includes being a co-founder of Apple Fitness+.
In addition to the CEO announcement, the shareholder letter stated that Peloton has made continued progress towards their financial goal of making the business sustainable and profitable for the long term. They report a strong Q1 FY2025 and “performed above our guidance on all our key metrics.” They state that they are achieving their cost savings target faster than expected “as a result of strong execution by our talented Peloton team members.”
Peloton will evolve their go-to market strategy with a “balanced approach” which will create demand for new audiences while they improve their short-term conversion tactics. Two thirds of Peloton Members are women so they will work on the opportunities to attract more men. Peloton also believes that they can grow the Tread business since the at-home treadmill market is more than twice the size of the stationary bike market. They have seen signals that their marketing strategies are working so far this fiscal year. They have seen a 9% Y/Y “mix-shift” in hardware sales towards men, which shows the highest shift in the Tread portfolio.
Peloton is still working towards goals that they set for FY2025 with measures that include aligning their cost structure to the current size of the business with $200 million of cost savings; improving unit economics (across all products, sales channels and markets) to result in profitable growth and meaningful free cash flow; and to keep making strategic investments in innovation so the company returns to top-line growth. This will come hardware and software product development, refining market strategy to attract new audiences and evolving content to deliver more diversified and engaging fitness experiences.
At the time of posting, Peloton stock was trading at $8.25 – a nearly 25% increase for the day. This quarter their operating expenses decreased $126 million or 30% Y/Y in Q1 and they achieved $116 million of Adjusted EBITDA and $11 million of free cash flow.
Some of the improvements were attributed to changes in the German market where they transitioned their operations to a third-party retail and distribution model, they believe by shifting this model to Amazon and FitShop, they may be able to operate in a way that may serve as a model for future international expansion. Other changes included the increase of hardware prices in international markets (and Row in the US) which will increase profits.
Peloton also reduced total sales and marketing expense by $64 million (44% Y/Y in Q1) during this seasonally low time period for sales. They will increase the spend for the holiday season, “while maintaining discipline to ensure that the subscribers we acquire are profitable.” As we had previously reported, throughout the holiday season, Peloton Bike+ will have special pricing for Costco locations in the US. Starting next month they will evaluate “A more cost-efficient retail model by testing a reimagined smaller store concept” – with the launch of a new showroom in Nashville.
Peloton also highlighted the recent All For One programming which generated 26,000 live member workouts, over 900,000 on demand workouts, and had country star Keith Urban perform live in-studio. Their new products and features includes the Strength+ App, game-inspired fitness experiences, personalized plans and Private teams. These will drive engagement from Members and gives personalization, social engagement and alternative workout experiences. Since they anticipate some initiatives to be more popular than others, they prioritize getting early versions to market faster so they can “assess Member response and iterate accordingly.”
Peloton spoke to new content offerings “to serve our Member base’s diverse interests” which included Strength for Soccer, and new offerings across Barre, Pilates, Yoga and Meditation. More low-impact offerings have been announced from Walking Bootcamps which adds to the Walking and Hiking content.
Expanded partnerships were also important to the company including use of pre-tax Health Savings Account (HSA)/Flexible SPending Account (FSA) to purchase applicable Peloton products through their website. Their partnership with Hyatt expanded with the new Earn More, Move More program with World of Hyatt. This program enables Members to Earn World of Hyatt loyalty points by completing workouts at participating hotels.
Peloton ended the quarter with 2.90 million Ending Paid Connected Fitness Subscriptions, a net decrease of 81,000 in the quarter. That exceeded the high end of their guidance by 10,000 subscribers. The Average New Monthly Paid connected Fitness Subscription Churn was 1.9%. They also ended the quarter with 582,000 Ending Paid App Subscriptions which was a net reduction of 33,000 in the quarter.
Peloton’s Total Revenue was $586.0 million which was comprised of $159.6 million of Connected Fitness Products Revenue (a decrease of $20.9 million or 11.6% Y/Y) and $426.3 million of Subscription Revenue (an increase of $11.4 million of 2.7% Y/Y). The Total Revenue was above the high end of their $560 million to $580 million guidance range.
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