Peloton's New Product Is Extremely Confusing and Secretive

Peloton  (PTON) - Get Free Report announced Q3 earnings on Thursday with wider-than-expected losses. 

The at-home fitness company reported a loss of $0.79 per share, versus the expected $0.46. Revenue dropped to $964.3 million, down 22% from a year ago.

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CEO Barry McCarthy warned investors and analysts that the worst may still be yet to come, saying Q4 "will be among our most challenging from a growth perspective," and forecasting a 6% drop in revenue year-over-year. 

One bright spot in the earnings report, however, was Peloton's uptick in subscribers. It finished Q3 with 3.1 million connected fitness subscriptions, up 5% from the year prior. Peloton defines its connected fitness subscribers as members who have a Peloton hardware product, such as the bike, and pay a monthly fee to take its proprietary -- albeit shrunken -- library of classes. 

Still, Peloton sees the way forward not through more hardware sales (e.g. purchases of its bike, treadmill, or rowing machine) but through subscriptions. It makes sense, given that it's a highly scalable solution to an otherwise sticky inventory problem. Most people who wanted a Peloton product already have one by now; the market has been saturated by at-home fitness hardware options since the pandemic. Rival lululemon  (LULU) - Get Free Report realizes this and is currently trying to sell its ill-fated Mirror fitness product, ostensibly for much less than it paid for it in 2020 ($500 million). 

Peloton Is Attempting to Rebrand

In an attempt to capture (and retain) users, Peloton wants to "relaunch its brand," later in May to convince people that it really is a tech/software company and not just a bike with an iPad. 

"Content is the golden goose," McCarthy said on the Thursday earnings call, adding "the magic and the glue that binds the community with almost religious fervor among the members is the content and the instructors and so if we're successful in extending that into the App world and if we architect the App in ways that drive personalization so that you can find and engage with all that content in a quick and in a frictionless way."

McCarthy and his team are obviously betting that a sticky subscription model is the antidote to Peloton's revenue woes. An app is far easier to develop, maintain, and up-charge for than, say, a piece of equipment that requires hundreds of individual parts and is heavily reliant on an already shaky and volatile supply chain.  

The only problem is that McCarthy isn't willing to share what will be in the app following the relaunch.

"I'm not going to say too much about the brand repositioning. I want everybody to experience it along with the consumers at the same time," he said, adding, "That moment is soon to be upon us and that will receive considerable focus in the marketing relaunch as well."

When pressed further about app tiers and what subscriptions might look like, CFO Liz Coddington was equally elusive. 

"We're not sharing today any details about our new App tiers and the pricing associated with them. But the way to think about it is that they aren't all going to offer the same offering to consumers. So for example, what we offer for Connected Fitness is all of our content on our hardware along with access to the App, you kind of get everything it's all access. The different app tiers will have different amounts of content experiences available to you at different price points."

It's still extremely unclear what Peloton plans to launch later this month, and what changes might be coming to its current app model (members pay a flat $13 monthly to access the class library). 

Given that there's almost no hype, fanfare or even a tease of what Peloton's new subscription model will look like. McCarthy's only mention of marketing was that it could be "more inclusive than it has been historically."

It might sound cynical, but in a world where there are already so many streaming services, subscriptions, and screens vying for our attention, simply launching another service quietly without any attempt to generate buzz seems like the wrong approach. Sure, there might be a "religious fervor" in-class, but that's among the people who already pay for a subscription. Attracting new users is costly and vital for Peloton's survival, and the company doesn't seem to have a sound -- or simple -- plan of action.