The following is excerpted from the question-and-answer section of the transcript.
(Questions from industry analysts are provided in full, but answers are omitted - download the transcript to see the full question-and-answer session)
Question: Bryan Smilek - JPMorgan - Analyst
: It's [Bryan Smilek] on for Doug. Just to start, last quarter, you had talked about the Connected Fitness market becoming closer to recovery. Can you
just update us on the trajectory of return to growth across the industry and maybe what you're seeing on the macro side? And more specific for
Peloton, what would be the one to two key growth initiatives that you're focused on for fiscal year '25?
Question: Eric Sheridan - Goldman Sachs - Analyst
: I want to come back to some of the comments you made during the prepared remarks. When you think about improving your LTV to CAC looking
out over the next couple of years, what do you see as the key gating factors to improve LTV to CAC? And how are you thinking about which
components of that are within your control versus an output of the broader either marketing or competitive environment generally?
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AUGUST 22, 2024 / 12:30PM, PTON.OQ - Q4 2024 Peloton Interactive Inc Earnings Call
Chris Bruzzo - Peloton Interactive Inc - Interim Co-CEO and Co-President
Yes. I mean I think -- this is Chris. I think you're seeing us continue to focus on that. In fact, we discussed last quarter how Lauren Weinberg jumped
into the business here at Peloton and brought a really great eye to marketing spend, and we're already seeing some of the benefit of that.
So we shared today that our LTV-to-CAC ratio for the last quarter was 1.5x, and that's short of where we want to be, but it's a good improvement.
And the way we're getting there is by being more focused on efficiency and on the parts of our business that we can have, I think, the most control.
We talked today about shifting our focus away from that because -- from a marketing standpoint because we're busily taking the learnings from
the last year and making that experience better. That creates an opportunity for us. So actually, it's both sides of the equation that are going to
Question: Nathan Feather - Morgan Stanley & Co. LLC - Analyst
: Congrats on the progress. Thinking about the subscriber decline that you're looking at in fiscal '25, can you help us think the key components
between the lower marketing spend, the macro stoppage of the bike rental program, et cetera? And then is the bike rental program something
that you may expect to toggle on and off depending on the level of used inventory?
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AUGUST 22, 2024 / 12:30PM, PTON.OQ - Q4 2024 Peloton Interactive Inc Earnings Call
Karen Boone - Peloton Interactive Inc - Interim Co-CEO and Co-President
Why don't I start with just some of the overall subscriber trends? Because I do think that harkens back to where we were coming out of the pandemic.
We saw sales slow down. And it's easier now to see what was happening, but I do think there was that pull forward.
So I think we've -- we believe that we're coming out of it, but we don't quite know if we're all the way out of it. So there's that, and there's the macro
that is hard to discern. So there's certainly some of those trends when you think about the subscribers and maybe having pulled some of those
forward. So that's certainly one of the things going on.
Question: Ron Josey - Citi - Analyst
: Two, please. Maybe a bigger picture and guidance talks about potential change in pricing overall. I wanted to see if there's any changes as you
think about subscription pricing or is it just hardware, meaning subscriptions around peers as newer products come out like the strength app or
Tread adoption? Any insights on pricing for subs? It's question one.
And then, Liz, I want to understand a little bit more of your comments on churn. Picked up year over year in the quarter, understand seasonality
here, though I think you also have expected to remain high going forward. So any insights on what's keeping that churn as high as it is relative to
historical would be helpful.
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AUGUST 22, 2024 / 12:30PM, PTON.OQ - Q4 2024 Peloton Interactive Inc Earnings Call
Karen Boone - Peloton Interactive Inc - Interim Co-CEO and Co-President
Sure. So I'll take the sub one. We are looking at all of the pricing across the business. There are no plans right now to increase our subscription price.
We do think it's a great value.
And as we do deliver more value with some of these experiences we're talking about, something we might consider in the future. But at this point,
we don't have any plans for that.
On the hardware pricing front, it's easier to think about what we might do in certain markets, especially where the penetration of third parties such
as international is more significant. There are certain markets where we're entirely third-party distributors, and so the margins there need to be a
little bit higher to support those.
So again, that reflects our -- looking at the unit economics across all products and across all channels. Right now, the subscription margins are quite
good. It's the hardware margins that are a little more challenged. So it doesn't mean that we won't ever entertain a subscription price increase, but
it's not something that we're planning for any time in the immediate future.
Question: Arpine Kocharyan - UBS Securities LLC - Analyst
: Could you go back to your kind of underlying assumption for Connected Fitness subs for 2025, and maybe kind of dissect how much of that decline
is increasing churn versus addition of new subscribers? And then just one housekeeping question. In terms of Q4, could you clarify a contribution
from lulu deal?
Question: Arpine Kocharyan - UBS Securities LLC - Analyst
: From lulu deal? lululemon deal?
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AUGUST 22, 2024 / 12:30PM, PTON.OQ - Q4 2024 Peloton Interactive Inc Earnings Call
Question: Lee Horowitz - Deutsche Bank Securities Inc. - Analyst
: Great. 2025 has clearly become a year where you rightsize the cost structure and get the business to a healthy profitable base. But looking forward,
how do you think about how much white space is actually left in the Connected Fitness market for Peloton to attack? And how may that view on
sort of the ability to attack the overall market inform the attributes you're looking for in your next CEO?
And then maybe one on gross margin. Can you help us unpack sort of the meaningful Connected Fitness gross margin improvements that you
were looking for in 2025 a bit more? How are you planning to affect that outcome in 2025? And how much more room do you think there is to sort
of rightsize that cost structure on product gross margins going forward sort of absent any benefits you may get from this?
Karen Boone - Peloton Interactive Inc - Interim Co-CEO and Co-President
Okay. There's a lot there. Let's start with what we're -- the white space and what we're excited about. I'd say there are still a lot of people who think
about us as a bike and/or cardio company. So I think that is white space. I think we have 16 modalities, but not everyone knows all the modalities
we have.
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AUGUST 22, 2024 / 12:30PM, PTON.OQ - Q4 2024 Peloton Interactive Inc Earnings Call
We're really excited about Tread and running, both from the selling more Treads, but also the content, the experiences and run clubs and social
features that we're thinking about. We're really bullish on strength. I think there's so much of a movement towards strength. I think people understand
the science behind it and why it's important. It is the number two modality for us, but I still think there's a lot of people who come for the cardio
and then understand the strength.
We're not yet known for strength. So I think you'll see with the beta tests we're having, with other things, we're planning to make sure that's better
understood and more well known. I think you'll see that as more of a white space for us in the future with new members and even kind of going
deeper with our existing members.
And then I think there's more we can do just with broadening beyond just fitness over time. These are things that will test and beta and make sure
they're working before we scale them and invest a lot of money behind them. But I think there's an incredible amount of white space over time for
us, both in the US and in our international markets.
With international specifically, we're very focused on reducing the losses there in our go-to-market strategy. So it's more capital-light. But as we
kind of optimize the current market, we'll be able to go into additional markets. So I do believe there's a lot of white space over time.
Chris Bruzzo - Peloton Interactive Inc - Interim Co-CEO and Co-President
Yes. And the things that Karen is talking about, strength, Tread, even our efforts to become more focused in marketing where we build up demand
before we try to deliver it via promotions, et cetera, all these things are made possible because we're putting the company on solid financial footing.
So we say in our remarks, we're planting the seeds here for growth. And some of these seeds will take some time. We've got to change that perception
that it's only about the bike that it's actually also about strength.
In fact, strength is our second most popular way of exercising with Peloton. It's also about running and we're doing some very cool stuff around
Pace Targets and running content. So those are efforts that are -- we're very excited about and we think create lots of white space for Peloton, but
it will take time to develop.
Question: Shweta Khajuria - Wolfe Research - Analyst
: I'm not sure if you addressed what you're looking for in the next year. If you could please comment on that, that would be great. And then the
second thing is these new initiatives that you are talking about, as the new CEO comes in, how could the strategy change potentially because that
it may depend on him or her a little bit as well. And as it stands now, which -- if you were to put it in a spectrum, which one do you -- which top
two strategies do you think will have the most impact in the near to midterm?
Karen Boone - Peloton Interactive Inc - Interim Co-CEO and Co-President
Sure. So I'll take the CEO question. As I said in my prepared remarks, this is a very high priority for us. We've been very focused on it. We are far
along in the process. We've done a lot of vetting, a lot of conversations. And we've narrowed it down to some very highly qualified candidates.
That said, we're not done until we're done because we're pretty far along on candidates, we're not going to go through the specific profiles, but I
would say we're just really excited about the process and the interest that there has been and the quality of the candidates we're talking to. So I'm
not going to give specifics on what we're looking for.
Again, we have some very specific folks in mind at this point. But that person will absolutely opine and weigh in on the strategy. I think some of
the things we're doing right now are intentionally something like a subscription price increase. That is a one-way door we probably wouldn't go
through without a new CEO as an example.
But the things we're doing now and the things we're focused on in the very near term, all the things we're talking about today are what I would
consider sort of no-brainers. We're being more judicious with our spend both on marketing, which we've talked about, but really up and down the
P&L.
And we're making sure that our unit economics and our margins make sense and that can -- those things fund CAC and future growth in the future.
And we're planting the seeds with what we think are some really exciting content and offerings for all of our members, new members and existing
members alike. So I think we're focused on that, and I think the new CEO coming in will pick right back up, and we won't miss a beat.
Chris Bruzzo - Peloton Interactive Inc - Interim Co-CEO and Co-President
Totally. And Karen and I like to talk about preparing the way for the next leader and making some of the smart moves now that we can make to
create the best possible environment. So getting the company on solid financial footing, planting seeds for growth. These are -- becoming more
effective in how we're using our resources, especially in marketing and then creating demand and in helping Peloton become known for things
like strength and Tread and running. These are the important things. So we see that as preparing the environment. And we think that, that's just
going to create a great runway for the next leader.
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