Dive Brief:
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Peloton Interactive has tapped Ford executive Peter Stern to be chief executive officer, effective Jan. 1. The company plans to appoint him to its board, per its press release.
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Stern also previously had leadership roles at Apple — he was co-founder of Apple Fitness+ — and at Time Warner Cable. He has been a Peloton member since 2016.
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The news comes as Peloton reported some progress in its turnaround. Total Q1 revenue dropped 1.6% year over year to $586 million, beating expectations, and net loss narrowed profoundly, from $159.3 million a year ago to $900,000.
Dive Insight:
In addition to his personal knowledge of Peloton itself, Stern’s background includes “meaningful expertise operating at the nexus of hardware, software, content and services at Ford, Apple and Time Warner Cable ... and he has grown more than a dozen subscription businesses,” the company said in a letter to shareholders.
His challenge will be to balance growth and profits, according to BMO analysts led by Simeon Siegel, who believes that Peloton “would be better served bear-hugging its brand loyalists and acknowledging that growth is likely in the rearview.”
The fitness company beat expectations on revenue in Q1, but its EBITDA improvement was especially encouraging, Siegel said. Adjusted EBITDA in the period reached $116 million and free cash flow reached $11 million, per the company’s letter.
As Peloton has labored toward profitability over the past several months, it has been more judicious in its marketing strategy. The company said in its release that Q1 tends to be a slower hardware sales period, and that total sales and marketing expense was down $64 million or 44% compared to a year ago, with its media spend at a historic low, down nearly 60% year over year.
“As we approach the holiday season, we expect to increase media spend while maintaining discipline to ensure that the subscribers we acquire are profitable,” the company said.
With women making up about two-thirds of the company’s membership, Peloton is shifting its marketing focus onto men, including via ads during football games, Chris Bruzzo, interim co-CEO and co-president, said on a Thursday call with analysts. Men are buying more Peloton hardware, which Bruzzo called “an indicator of the way we're thinking about the marketplace now, which is targeting those discrete pockets and then being efficient and effective in the way that we're reaching them.”
And in some areas, Peloton has also switched up some of its pricing and selling models. In Q1 Peloton raised the retail price of its Bike and Bike+ products in international markets, and in Germany shifted to a third-party retail and distribution model. In North America, the company raised the retail price of its rowing machine. Adding in mix-shifts toward higher-margin revenue streams and supply chain efficiencies, the Q1 gross margin in its connected fitness segment expanded by 600 basis points year over year to 9.2%.
Subscription churn was 1.9% in the first quarter, with engagement “relatively stable [year over year] and well above pre-Covid levels,” the company said. Peloton released new content, including an in-studio performance by Keith Urban. The period ended with paid connected fitness subscriptions down 2% year over year to 2.9 million and paid app subscriptions down 24% to 0.6 million.
Peloton is also testing new products and features aimed at driving higher engagement, which the company said is key to subscriber retention. Its approach is to speed up the release of new software initiatives to glean the response and “iterate accordingly,” the company said.
