Dive Brief:
- Peloton on Thursday reported second-quarter revenue fell over 9% year over year to $673.9 million. Connected fitness revenue declined 21% year over year to $253.4 million, while subscription revenue fell 1% to $420.6 million.
- The fitness brand’s member base shrunk during the period to 6.2 million, a 4% year-over-year decline, according to Peloton’s most recent shareholder letter. Paid connected fitness subscriptions fell 4% year over year, while paid app subscriptions fell 19%.
- Despite falling sales and membership, Peloton narrowed its losses during the quarter: Operating loss was $45.9 million from $187.1 million last year, and net loss was $92 million from $194.9 million in the year-ago period.
Dive Insight:
While revenue and memberships continued to slide, Peloton said it exceeded expectations.
“We see significant opportunities ahead, but we have a steep hill to climb to reach sustained, profitable growth,” the company said in its shareholder letter.
The fitness company started the year with a new CEO. Peter Stern joined Peloton as CEO in January after holding leadership roles at Apple and Time Warner Cable.
“While it’s still early days for our new CEO, it's already clear where we need to focus to serve this purpose: innovation on new products and experiences that lead to even better outcomes for members; presence in more places so we can meet members wherever they are; more ways to connect members with Peloton and our supportive community; and improved unit economics with a cost structure that’s right-sized for our business,” the company said.
Peloton has been building out its distribution network in recent months. The brand partnered with Costco during the holidays to sell an exclusive Bike+ bundle and last month announced a deal with Target to sell apparel and accessories on the mass merchant’s third-party marketplace.
The brand’s efforts to expand its core audience center around targeting men. To drive this, Peloton in November rolled out a campaign with brothers and football players J.J. Watt and T.J. Watt. The company noted men accounted for 42% of paid connected fitness subscription gross additions during the quarter, which is up 240 basis points from last year.
Peloton, which first gained recognition for its stationary bike equipment and classes, is looking to gain momentum in other fitness areas in order to foster long-term memberships. The brand is hoping members use its platform to participate in multiple fitness activities, including running and strength training: “Our monthly churn rate is roughly 60% lower for Connected Fitness subscriptions engaging with two or more disciplines per month versus those engaging with just one,” Peloton said in its shareholder letter.
A recent focus has been on strength training in particular, with more than 2 million unique members completing a strength workout in Q2. Peloton in December rolled out a new strength training-focused app, which reached over 220,000 monthly active users “and represents another value-add for our members.”
The company also addressed any potential impacts to its business from possible tariffs. Stern said on a call with analysts that no Peloton-branded hardware products are subject to tariffs from China, Mexico or Canada. If all tariffs were to go into effect at the current proposed rates from Mexico and China, the company expects a 1% impact to its connected fitness costs, mainly related to apparel, and an unmitigated impact under 1% from China, CFO Liz Coddington added.
Looking ahead, Peloton raised its full-year outlook for adjusted EBITDA, expecting a range of $300 million to $350 million, which represents a more than 9,000% increase at the midpoint. The brand projects total revenue to fall about 9% at the midpoint, and for paid connected fitness subscriptions and paid app subscriptions to each fall 7% year over year.
