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{"id":5556,"date":"2022-05-11T14:40:17","date_gmt":"2022-05-11T14:40:17","guid":{"rendered":"https:\/\/scienceandnerds.com\/2022\/05\/11\/pelotons-restructuring-plan-is-off-to-a-slow-start\/"},"modified":"2022-05-11T14:40:18","modified_gmt":"2022-05-11T14:40:18","slug":"pelotons-restructuring-plan-is-off-to-a-slow-start","status":"publish","type":"post","link":"https:\/\/scienceandnerds.com\/2022\/05\/11\/pelotons-restructuring-plan-is-off-to-a-slow-start\/","title":{"rendered":"Peloton\u2019s restructuring plan is off to a slow start"},"content":{"rendered":"

Source: https:\/\/www.theverge.com\/2022\/5\/10\/23065004\/peloton-earnings-q3-2022-barry-mccarthy<\/a>
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When Barry McCarthy stepped up as Peloton\u2019s new CEO<\/a> last quarter amid news the company had laid off 2,800 employees, it was clear he had his work cut out for him<\/a>. Since then, McCarthy has been vocal about shifting the company\u2019s<\/a> focus<\/a> from hardware to software. That new direction can be explained by looking at today\u2019s Q3 earnings<\/a> release, which paints a tough financial picture for Peloton. The company continued to post larger than expected losses, and stock prices subsequently plunged more than 20 percent<\/a>.<\/p>\n

Peloton said today that its Q3 losses were $757.1 million, compared to an $8.6 million in losses at this time last year. Meanwhile, revenue slid to $964.3 million from $1.26 billion a year ago. As with last quarter, Peloton attributed the decline to lower demand as pandemic restrictions eased and increased costs due to higher than ideal inventory. In its shareholder letter<\/a>, Peloton said that number was partially offset by Tread<\/a> sales. However, the company also said Tread Plus<\/a> returns were higher than anticipated following last year\u2019s recall<\/a>, costing the company $18 million. McCarthy also noted that the company finished the quarter with $879 million in cash, leaving the company \u201cthinly capitalized\u201d for its needs. To \u201cstrengthen [its] balance sheet\u201d, McCarthy pointed to an additional $750 million in funding it received from JPMorgan and Goldman Sachs earlier this week.<\/p>\n

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Peloton Tread sales helped offset some losses. The company said Tread Plus returns were higher than expected.<\/em><\/figcaption>Photography by Amelia Holowaty-Krales \/ The Verge<\/cite><\/p>\n

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Those numbers don\u2019t paint a rosy picture for the connected fitness company\u2019s current finances, which is why the company is in the middle of a dramatic shift in strategy \u2014 though it may not be all doom and gloom. In April, the company announced it was slashing prices for all of its hardware<\/a> and raising the cost of its All-Access membership to $44 starting June 1st. The company also began piloting a new subscription model called One Peloton Club<\/a> that allows users to rent the Bike and take classes for a monthly fee. So far, McCarthy said in today\u2019s investor call that the company has seen promising results from these efforts. Reducing the price of its equipment led to daily unit sales increasing by 69 percent. Meanwhile, McCarthy cited the \u201cmass market appeal\u201d of the One Peloton Club pilot, with 53 percent of signups coming from people with household incomes of under $100,000. <\/p>\n

Peloton\u2019s quarterly subscriber churn rate also improved to 0.75 percent, from 0.79 percent last quarter. Peloton\u2019s always had impressively low churn, and the Q3 figure also includes a \u201cmodest increase\u201d in cancellations following the news that the company would be hiking up its monthly membership fee starting June 1st. That said, McCarthy said on the investor call that Peloton was \u201chedging its bets\u201d on what churn might look like going forward once the price hike hits. <\/p>\n

\u201cIt remains to be seen what the net impact is when the price increase hits in June,\u201d McCarthy said on the call, adding that the company won\u2019t \u201cknow until it knows.\u201d <\/p>\n

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The Peloton Guide is the company\u2019s latest hardware release.<\/em><\/figcaption>Photo by Victoria Song \/ The Verge<\/cite><\/p>\n

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Otherwise, McCarthy said he was optimistic for the company\u2019s future \u201cnotwithstanding the stock price,\u201d saying that \u201cturnarounds are hard work.\u201d (Of course, you\u2019d expect McCarthy to be bullish on his own company.) He doubled down on the company shifting gears to be less reliant on hardware \u2014 which is interesting when considering its recent launch of the Peloton Guide<\/a> and rumors that it\u2019ll eventually release a connected<\/a> rower<\/a>. <\/p>\n

\u201cThe overarching strategy is connected fitness,\u201d McCarthy said on the call. \u201cWe need to be good at hardware but being good at hardware is not nearly sufficient.\u201d<\/p>\n

McCarthy went on to elaborate on what he meant by \u201cconnected fitness.\u201d Namely, the company aims to grow its membership to 100 million members by expanding into global markets and promoting the Peloton App. That\u2019s a significant jump from its current membership, which increased 29 percent year over year to 7 million. Meanwhile, unaided awareness of the Peloton app in the US is a meager 4 percent \u2014 likely because Peloton is primarily known as \u201cthat Bike company.\u201d He also noted that the app hasn\u2019t been at the center of the company\u2019s marketing efforts thus far, even though it\u2019s the easiest way to expand outside the US. McCarthy also kicked around the idea of potentially changing hardware designs in the future so that Peloton products arrive at consumers\u2019 homes in one piece. Currently, Peloton\u2019s treadmills and bikes require white-glove delivery and installation. <\/p>\n

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