For Peloton to succeed, it needs to turn loyalty into cash

Peloton doubled its subscribers, but growth is slowing.
Peloton doubled its subscribers, but growth is slowing.
Image: Peloton
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The first earnings report as a public company for Peloton, the internet-connected bike and treadmill exercise firm, was a rocky one.

Peloton said it more than doubled its “connected fitness” subscribers year-over-year. The designation—which can refer to people, households, or commercial properties that pay for its exercise services —jumped from 277,000 users in the first quarter of its fiscal 2019 to 563,000 users in the first quarter of its fiscal 2020, the company said in its shareholder letter published Nov. 5.

Peloton did not immediately reply to an inquiry about whether it counts paused subscriptions in its figures.

The company’s subscriber base is growing, and it generated $228 million in revenue for the quarter, but it wasn’t enough to swing it into the black: Peloton reported a net loss of almost $50 million. That bottom line, however, represented a $4.8 million improvement over the same period last year. Peloton, which encourages bike and treadmill owners to sign up for its online classes and services to use their hardware, said approximately 90% of connected fitness subscribers are on monthly payment plans, with subscription revenue accounting for 29% of its total revenue. Sales of its bikes and treadmills, and the various accessories for both, accounted for 69% of total revenue.

Peloton’s stock price fell nearly 8% after it announced the results. At market close, shares traded for $22.74, down more than 20% from its IPO price of $29 back in September.

While the company’s 103% subscriber growth suggests a promising future, quarterly growth appears less robust. Indeed, measured quarterly, Peloton’s subscriber growth has fallen to about 10%, a considerably less glitzy number. After adding 95,000 and 54,000 subscribers in the quarters just prior to its September IPO, the company added just 52,000 new subscribers last quarter.

Peloton’s growth prospects seem uncertain, especially with competitorsexercise offerings on the horizon. But the company boasts a one-year retention rate of 94% for subscribers, which means the company will have to work on getting as much recurring revenue out of loyal users as possible.

And there are other small positive signs for the future. Peloton disclosed the $47 million acquisition of Tonic, a Taiwanese bike manufacturing company, which may reduce investor anxiety about the stability of the company’s supply chain. Peloton also shared plans to expand into Germany later this month. Its bikes are currently available in the US, UK, and Canada.

For the second quarter of 2020, Peloton anticipates generating between $410 million and $420 million in revenue, with losses between $65 million and $70 million. The company also expects to grow its connected fitness subscriber base to between 680,000 to 685,000 users, which at the top end would be a jump of 21% over the current quarter.

Much like in any of its online workout classes, it seems that for Peloton, resistance has increased. Selling exercise equipment is a decent business for now, but the long game is repeated payments.