Peloton Plans Rebrand, Refreshed App After Poor Q3 Results

Peloton shares took a dive after the company reported a $276 million loss, sagging revenue and slumping hardware sales

Peloton is still confident in its offerings but indicated it will pivot towards the reintroduction of its app after the company reported disappointing results for Q3.

Shares of Peloton took a 14.33% dive Thursday afternoon after the connected fitness company reported a $275.9 million loss, compared with a loss of $751.1 million for the same period last year.

Revenue also fell 22% to $748.9 million, beating Wall Street’s expectations $710 million. Online classes resulted in a revenue increase of 15% while sales of fitness hardware dropped by nearly half to $324.1 million. 

Looking ahead, Peloton expects revenue between $630 and $650 million for Q4, but is planning for a decline in subscribers. 

Here are some key points from Peloton’s earnings call and a letter its CEO Barry McCarthy wrote to investors:

Repsonding to changes in consumer behavior

While Peloton acknowledges it led the way with indoor cycling, it sees that users and experiences have evolved, with 57% of all workouts logged not cycling-related. 

Active Peloton members (62%) have also participated in non-cycling activities, such as strength training, yoga, meditation and other modalities, and 38% of all workouts didn’t involve Peloton hardware at all. 

It’s a disconnect, wrote McCarthy in his letter, despite Peloton’s desire to empower people on their fitness journeys. 

In response, Peloton will relaunch its brand later this month to better communicate its value proposition, re-introducing the Peloton App. The app will have a tiered membership structure as a “mobile gateway” to its fitness content, ranging from strength and meditation to outdoor running. 

As for the new app tiers, Peloton execs were reluctant to share details and the associated pricing on the earnings call, but McCarthy touched on it in his letter.

“The brand relaunch and the re-introduction of our Peloton App are two of our most important growth initiatives,” McCarthy wrote. “Historically, we have experienced a seasonal decline in subscriber growth in Q4 FY. We’re expecting a decline this year as well. Notwithstanding the relaunch, Q4 will be among our most challenging from a growth perspective.”

When pressed on the earnings call, McCarthy wouldn’t discuss too much about the brand’s repositioning, stating that he wants everyone to experience it along with the consumers at the same time.

Peloton revealed that its upcoming marketing campaign would be aimed at slightly younger consumers.

With a focus more on its app, Peloton says it sees the advantages of being asset-light regarding growth.

“If we’re successful in deploying an asset-light model, we’d probably see faster growth in international. It’s much easier to launch internationally an app product then it is hardware business, for sure,” noted McCarthy.

Bike rental program off to a good start

Over the past fiscal year, Peloton has launched a Fitness-as-a-Service rental program and a Peloton Certified Refurbished bike program, which the company says is delivering strong growth. FaaS subscribers grew 70% in Q3, and Peloton sold 7,000 refurbished bikes in the quarter.

“Consumer research tells us FaaS rentals are highly incremental, with 62% of respondents saying they wouldn’t have subscribed if it weren’t for the flexibility our new rental program offers,” McCarthy wrote.

From a marketing perspective, McCarthy said Pelton has done little to push FaaS and the refurbished bikes. 

“People are finding them on their own,” he said. “In some instances, there is a banner across the top of our homepage with steers towards one or the other. For the most part, you have to discover FaaS by clicking down a couple of layers on the web. So think of it mostly as organic pull-through.”

Still, there are some uncertainties looking forward.

“We don’t know the impact that these launches are going to have on our connected fitness hub growth in Q4,” said Liz Coddington, CFO. “We’re cautiously optimistic about that, but we have not baked any of that optimism into our guidance forecast.”

Peloton will lean further into hospitality 

Peloton also reports strong sales in its third-party retail businesses with Amazon and its commercial businesses.

“We intend to build on our successful Amazon partnership by expanding our product assortment and participating in major promotional events like Prime Day, which we expect to deliver meaningful Y/Y growth in unit sales and revenue,” McCarthy wrote. 

As Peloton expands its Hilton partnership to bring Peloton to Hilton properties in Puerto Rico, Canada, the U.K. and Germany, the brand says it will lean further into the hospitality sector. 

McCarthy refers to the hospitality push as a “fruitful source of consumer demand” for the company.

“Enormously productive, historically. I would anticipate that will continue on a go-forward basis,” he said. 

The brand will also lean into international growth in FY 24. In Q3, Peloton reported that international connected fitness subscriptions grew faster than the U.S.

“This past year we dramatically reduced our operating losses internationally, but it’s not enough to reduce operating losses. We have more work to do to unlock international growth and profit,” wrote McCarthy. “We’ll have more to say about our international business next quarter.”

Peloton happy with connected fitness rower

Since its still a new product, Peloton leadership wouldn’t explicitly share the sales for its connected fitness rower and acknowledged that it doesn’t have a “high unaided awareness” yet. 

McCarthy added that the rower received favorable critical reviews and remarked that it has made it “much more difficult for some of the competitors” in the connected rowing space.

“Frankly, we didn’t really know what to expect when we launched it, but the combination of the favorable critical reviews and then the reception from our users has been quite good,” said McCarthy.

While the rower is only available in U.S., Peloton said it’s looking to launch it internationally in other markets over time. 

Content is still paramount

“Content is kind of the golden goose,” McCarthy said. “Is the bike a great experience from a hardware perspective and better than things that had come before it?

“Absolutely is,” said McCarthy. “But the magic and the glue that binds the community with almost religious fervor amongst the members is the content and the instructors.”

If Peloton successfully extends that into its app division, and if it’s created in a way that drives personalization, McCarthy says it will be victorious. 

New forms of content will be coming in the future, added Coddington, who called that the “secret sauce” at Peloton.