Here’s how Peloton CEO Barry McCarthy’s turnaround plan is going

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Barry McCarthy speaks during an interview with CNBC on the floor of the New York Stock Exchange (NYSE), Oct. 28, 2019.

Brendan McDermid | Reuters

Peloton investors flee after the company’s discouraging fourth quarter. But CEO Barry McCarthy is trying to convince them to stay for what he says will be a comeback story.

Shares fell nearly 20% on Thursday, wiping out gains the company made on Wednesday after it announced a partnership with Amazon to sell some of its equipment.

Peloton reported Thursday morning that its losses in the three-month period ended June 30 were $1.2 billion, and sales were down about 28% from a year ago. Associated gross margins for fitness declined as inventories piled up and transportation and warehousing costs increased.

Peloton managed to moderate its cash burn, but doesn’t expect to achieve quarterly break-even cash flow until at least the second half of fiscal 2023.

Peloton’s bleak outlook for the current period and lack of full-year forecasts prompted Jefferies analyst Randy Konik to declare in a note to customers on Thursday that “gyms are back in full swing.”

There are a lot of Peloton members who no longer use the bike, but still pay the monthly membership,” Konik said. “Those fringe users are likely to cut the cord in the coming months and years, especially as monthly sub-prices are increased by the company. .”

When McCarthy took over the CEO role from company founder John Foley, he said he didn’t realize how deep some of the problems ran. Now McCarthy is cutting costs and trying to grow subscription revenue at higher margins so that it exceeds hardware sales.

“We happen to be right in the middle of the pivot,” the former Netflix and Spotify executive told analysts during a conference call. “We’ve made significant progress in addressing all of the company’s infrastructure-related headwinds, and now it’s time to get back to the business.”

Here are three things Peloton is testing to gain new users and drive sales:

1. ‘Fitness as a Service’

Peloton’s so-called fitness-as-a-service strategy is still in its infancy. This is McCarthy’s idea of ​​driving more subscription growth and lowering the barrier to entry for people who are afraid to commit to buying one of Peloton’s products.

Currently, customers can pay $89 per month to rent Peloton’s original bike and also access the live and on-demand training classes. These customers can then return their bicycles when they have finished using them.

McCarthy told analysts on Thursday that Peloton hasn’t fully sold this option to the masses yet, as it has gradually rolled it out in the United States and has also tested it with its more expensive Bike+ for a fee of $119 per month. He said Peloton is on track to have between 30,000 and 40,000 of these rental customers annually. A win, he said, would be to get closer to 125,000 to 150,000.

Though encouraged by the early usage stats, McCarthy said he needs to figure out whether he’s “made an atomic bomb” or is putting Peloton “on the path to the promised land.”

Peloton has also toyed with the sale of used bikes, which management said sold like hotcakes on test rides earlier this year.

2. Growing the Peloton Digital App

Following Foley’s example, McCarthy has said that he believes Peloton could number 100 million members in one day. It’s a huge jump from the roughly 6.9 million it has today. The company’s mobile app will be key to this growth.

Peloton said on Thursday that awareness for its digital app is around 4% today, leaving a lot of potential. It closed the last quarter with 980,000 apps-only subscribers, up 12% from a year earlier.

McCarthy teased that Peloton is now interested in creating tiered pricing offers within the app so that users can pay extra money to access more content and other special features. Currently, all users who don’t have a Peloton product at home pay $12.99 per month to access everything in the company’s app.

The CEO cited his time at Netflix as an example. McCarthy said Netflix was able to survive Blockbuster in the movie rental wars because it offered customers a slew of options.

“We have significantly accelerated the pace of innovation and testing and risk taking,” McCarthy said.

3. ‘Freemium’ model?

Peloton is also preparing to test something it calls a “freemium” strategy, which will also be tied to the app. The company said it wants people everywhere to have access to Peloton’s classes.

That would mean users could pair their smartphone with a third-party training device via Bluetooth and access Peloton’s content library from there. Even if it’s a competitor’s device.

“We’ll be happy if people use our content on someone else’s hardware,” McCarthy said on Thursday’s conference call. Ultimately, this is another way Peloton can continue to grow its membership base, he said.

But, like some of Peloton’s other ideas, this one is still in its early stages. Piper Sandler analyst Ed Yruma said it’s not clear what will help Peloton return to sustainable growth.

“Barry McCarthy has quickly strengthened the balance sheet…but a return to predictable growth remains tbd,” he said in a note to customers.

The Valley Voice
The Valley Voicehttp://thevalleyvoice.org
Christopher Brito is a social media producer and trending writer for The Valley Voice, with a focus on sports and stories related to race and culture.

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