Reevaluating Peloton’s App Subscription Strategy
During the latest earnings call, Peloton unveiled that its app subscription growth has not met expectations. This slower than anticipated growth has led the company to reconsider its projections and strategy for the app. Peloton’s report showed a decrease in paid app subscribers, with a net loss of 44,000 users, bringing the total to 674,000 at the quarter’s end. This downturn deviates from their previously forecasted growth path.
Several factors contributed to this shortfall, including fewer new subscribers than expected, particularly in the Peloton for Business channel, and a decline in demand for trial subscriptions. Notably, Peloton recently transitioned from offering a free app tier to a seven-day free trial.
The company also faced a higher-than-anticipated churn rate in its Average Monthly Paid App Subscriptions, which stood at 9.2%. This was largely due to subscribers moving away from legacy pricing as Peloton shifted to new app tiers. Subscribers who were on the original pricing plan were temporarily upgraded to App+ before being moved to the App One tier at the beginning of 2024.
As a result of these challenges, Peloton has revised its outlook, reducing the expected number of Ending Paid App Subscriptions by 150,000, or 19%, to a midpoint of 605,000. The company’s guidance reflects a continuation of the third quarter’s trends into the fourth quarter. Peloton is also taking a more disciplined approach to App media spending as it reviews its app tiers, pricing, and the Paid App subscription acquisition funnel.
Despite the decline in subscription numbers, Peloton experienced a 2.4% increase in app subscription revenue, bolstered by the growth in premium App+ subscriptions. The company acknowledges the need for a strategic reassessment in subscriber acquisition and retention, which has led to a pause in further media investments while they explore tiered pricing strategies and refine the subscriber acquisition process.
These developments indicate that Peloton may introduce changes to its app tiers, potentially affecting current users. Liz Coddington, the Chief Financial Officer, mentioned on the earnings call that they are considering adjustments to pricing and tier structures as part of their ongoing evaluation of the app tiering strategy.
Despite the setbacks, Peloton sees the app as an integral component of their fitness experience and platform. Coddington and Interim CEO Chris Bruzzo have both emphasized the company’s commitment to learning from these challenges and continuing to innovate and improve the app’s conversion rates.
For those seeking to understand the distinctions between Peloton’s app tiers, further information is available, providing a detailed overview of the offerings. Additionally, the latest earnings report and investor call, which also covered CEO Barry McCarthy’s departure and the layoff of 400 employees, can be found for those interested in the broader context of Peloton’s current business landscape.
