Text size
Peloton XXX
Ezra Shaw / Getty Images
For years,
Peloton Interactive
executives characterized the company’s $ 39-a-month subscription price as “holy,” “holy,” and “our golden goose.” Not anymore.
The manufacturer of interactive bikes and treadmills told subscribers on Thursday that it raised the price of its affiliated fitness membership for the first time. The subscription, which gives users access to digital classes and scenic rides on Peloton (ticker: PTON) machines, will cost $ 44 in the United States as of June. The move stands out amid the broader turnaround efforts at Peloton under new CEO Barry McCarthy, who replaced founder John Foley earlier this year.
“Never say never, but I see it as our golden goose, and that $ 39 price point is sacred to me,” Foley said. Barrons in 2018, when the company was still closely held. “You have to do wonderful things and leave money on the table.”
The peloton declined to comment beyond its announcement, noting that the increase will follow lower equipment prices in all markets. The company also said it has added content, disciplines, music, instructors and new features across its products. men a Barrons analysis of transcripts of public appearances by executives provided by Sentieo found executives repeatedly argued for adding content without raising subscription costs.
Foley said during a Barclays event in 2019 that he himself chose the number because it cost $ 30 to $ 35 for just one boutique fitness class in New York City, according to a transcript provided by Sentieo.
“It’s a sacred price point,” Foley said. The $ 39 we earn over time will call it, 70-plus percent margins in the coming years at the $ 39 a month. And so yes, we’re giving you more and more goodness, more content, more software, more class types, more categories, and we are very excited about that. “
He repeated this sentiment at a Goldman Sachs event in September 2021.
“We are willing to make the investment and we are fully committed to increasing the value of our $ 39,” Foley said at the time. “More software, better features, more content, better content and gives you the scope of more products all for $ 39.”
Although Foley is the company’s chairman of the board, McCarthy is now trying to fix the ship and win Wall Street back following calls from some investors for the Peloton to sell itself. He is testing new price points and offers – including an equipment program called One Peloton Club, which offers equipment as a subscription option. The company also lowered the price of its new strength training product, the Peloton Guide.
It is not surprising that McCarthy, a former Netflix (NFLX) and Spotify (SPOT) CFO, wanted to leverage Peloton’s pricing power. This was stated by BMO Capital Markets analyst Simeon Siegel Barrons that he felt the company had the leeway to raise its subscription price for years, but felt the company was too ambitious in its efforts to expand its overall base and “democratize fitness.” The company’s shares have fallen 80% in the past year after the company overestimated the demand for its bikes as the shutdowns fell.
“The interesting dynamic in what happened yesterday is that the company lowered the price for new members while actually raising the price for existing members,” Siegel said. “It does not fit well with loyalists, with members. So in the end, people who have paid more for the bike think they are now subsidizing the cost of adding new people to the club.”
And that’s a bit of a turnaround for McCarthy, who told Yahoo Finance in March that the $ 39 price tag for existing members is not “disappearing.”
“Management is clearly entitled to change their mind in the light of new facts and raising the monthly price of the subscription may well be the right move,” Siegel added. “That said, it seems that a return to recent comments that the $ 39 price tag would not go anywhere reflects past communications failures from the company and continues to appear as if management is testing real-time strategies on their members and teachers on the go. “
Write to Connor Smith at connor.smith@barrons.com