Peloton ends a key brand partnership that affects some bikes

If the early 2020s saw the expansion and advancement of Peloton  (PTON) - Get Free Report at-home fitness equipment, more recent years in this decade have begun to see the consolidation. 

Part of this consolidation may be intentional. The bike company's management has signaled to members and investors that it intends to lean more into its software and app offerings, instead viewing itself as a tech company than an outright equipment play. 

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"We take a holistic view of the revenue stream and the expenses associated with both the hardware and the subscription associated with it. So from my part, I don’t particularly care about the hardware margin," CEO Barry McCarthy said in the Q2 2023 earnings call, suggesting the path to profitability will likely be because of the app and subscription end, rather than its actual fitness hardware.

In May, Peloton dug in, raising the price of its app subscriptions. Currently, there are three levels at varying price points.  They are: 

• App Free: $0, rotating selection of limited classes
• App One: $12.99 monthly, 3 monthly equipment classes, unlimited other (equipment-free) classes
• App+: $24 monthly, unlimited classes of all types

Peloton Tread, Bike, and Row members will continue to pay $44 per month for their All-Access membership, meaning it's certainly most expensive to own your own Peloton equipment and keep up with its classes. 

Peloton makes a bike change

It's been interesting to follow Peloton's varying changes and tweaks to its business model over the past few years. It's no secret that the company foresees its value in its low-cost to operate software model, which means offloading some of the pricier equipment that hasn't served as a consistent revenue stream. 

In August 2023, Peloton announced it would partner with the University of Michigan and release school-color-branded bikes in an attempt to test customer preference and loyalty. Less than a year after the announcement, however, McCarthy announced the company would no longer pursue the partnership and close its school-branded partnerships.

"One initiative that hasn’t worked is our premium co-branded Bike experiment with the University of Michigan. Notwithstanding the football team’s success winning the national championship, we sold substantially fewer Bikes to alumni and boosters than we expected. What seemed like a good idea didn’t deliver. So instead of launching additional co-branded bikes in school colors, we will end-of-life this hardware initiative," McCarthy wrote the Q2 2024 shareholder letter. 

Revenue for the company in Q2 declined 6% compared to the year-ago period. Fitness hardware (such as Bikes and Treads) saw its revenue fall 16%, whereas subscription revenue increased by 3%. 

And while many folks may not want a blue and gold bike, they may want a plain one second hand. A bright spot in the Q2 report was Peloton's Bike Rental program. 

"We’re forecasting more than 100% Y/Y revenue growth for FY24," McCarthy said of the new program. "The underlying economics continue to be attractive, given the current churn and buyout rates for Bike and Bike+...We expect to test the business model in new markets like Corporate Wellness later this fiscal year in a push for faster growth."

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