Peloton Confronts Subscription Declines Amid Strategic Shifts

Despite a solid financial footing and promising strategic innovations, Peloton’s fourth-quarter results reported Thursday (Aug. 22) expose a troubling reality: a dramatic plunge in subscription numbers.

The company’s ambitious upgrades to its product and content have failed to counteract a steep decline in both Connected Fitness and app subscriptions, casting a shadow over its otherwise stable performance.

Peloton, which saw modest 0.2% revenue growth, to $644 million, ended the fourth quarter with 2.98 million paid connected fitness subscriptions, a decrease of 75,000 from the previous quarter. The decline was partially offset by gross additions from first-party, third-party retail and secondary market channels. With an average churn rate of 1.9%, consistent with seasonal patterns, the data underscores persistent issues in maintaining subscriber loyalty.

Drop in Subscriptions

The situation is more critical for Peloton’s paid app subscriptions. The company reported a net reduction of 59,000 app subscriptions, ending the quarter with 615,000. The churn rate for app subscriptions was notably higher at 8.4%, reflecting deeper issues in retaining app users. Despite investing in new content and features aimed at enhancing the app’s strength offerings, personalization and social features, the reduction in media spend to improve efficiency seems to have impacted subscriber growth adversely.

Despite the company’s efforts in many areas, timing for reversing the negative trend in subscriptions remains unclear.

According to the shareholder letter, fiscal year 2025 guidance for paid connected fitness subscriptions “reflects a broad range of potential outcomes. We will continue to refine our strategy over the course of the year, which may include potential changes in pricing, promotional strategies, and other levers we may pull to achieve our financial targets. While we are optimistic we can improve engagement through product and content innovation and evolving our marketing strategy, the timing of when we will start to see a meaningful benefit from these efforts is uncertain.”

Looking ahead, the letter states, includes “an assumption that our investments in new initiatives will not deliver subscriber growth within the fiscal year, as well as an uncertain macroeconomic outlook.”

Renewed Focus on Experiences

Peloton’s strategic focus has been on improving the subscription experience through various innovations. The introduction of new social features, including the “Find Friends” function, aims to boost community engagement and subscriber satisfaction. Additionally, the company has piloted the “Peloton for Business” program with the YMCA of Metropolitan Chicago, integrating Peloton equipment and content into corporate wellness offerings.

Peloton is also investing in its app to enhance user experience, with significant efforts directed at improving content quality and personalization. Despite these efforts, the effectiveness of these strategies in driving subscriber growth remains uncertain.

Peloton officials anticipate continued pressure on subscription numbers. The company expects a year-over-year decline in hardware sales, a typical trend for the seasonally weak first quarter. Additionally, Peloton’s decision to reduce sales and marketing spend and discontinue the original Bike rental program may further impact subscription growth.

For paid app subscriptions, a sequential decline in gross additions is projected, although improvements in churn rates are expected due to stabilization in the corporate wellness app subscriber base. Peloton’s focus on enhancing the app’s user experience is expected to play a key role in this stabilization.

Peloton’s management, under the interim leadership of Karen Boone and Chris Bruzzo, is working to address the subscription challenges. The search for a new CEO is underway, with an emphasis on finding a leader who can drive the next phase of growth for the company. In the meantime, Peloton is committed to refining its subscription strategies, including potential changes in pricing and promotional approaches.

Another initiative announced Thursday was a one-time activation fee in the U.S. and Canada for used equipment purchased through secondary markets like eBay or Facebook Marketplace. The fee of  $95/ $125 CAD aims to provide a consistent onboarding experience for new members who acquire Peloton products secondhand.

The company remains optimistic about the potential for future growth in the connected fitness market, despite current challenges. Peloton’s investments in product innovation, such as advancements in the tread and strength content, as well as new community features, are designed to enhance subscriber engagement and retention.

During the earnings call with analysts and investors, Chief Financial Officer Liz Coddington said company officials are excited about the product innovation areas they’re pursuing and how it connects to future impact on subscriber growth.

“We’re unsure how efficiently we can grow paid fitness and app subscribers,” she said. “We want to improve the member experience. As we test new fitness and wellness offerings, we’re allowing time to learn and iterate before we scale them.”

While the company’s financial performance remains strong, the subscription challenges indicate a pressing need for continued innovation and strategic refinement.

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