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For years,
Peloton Interactive
executives characterized the company’s $39 a month subscription price point as “sacred,” “sacrosanct,” and “our golden goose.” Not anymore.
The maker of interactive bikes and treadmills told subscribers on Thursday it was raising the price of its connected fitness membership for the first time. The subscription, which allows users to access digital classes and scenic rides on Peloton (ticker: PTON) machines, will cost $44 in the U.S. starting in 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 sacrosanct to me,” Foley told Barron’s in 2018, back when the company was still closely held. “You have to do delightful things and leave money on the table.”
Peloton declined to comment beyond its announcement, which notes that the increase will follow lower equipment prices in all markets. The company also said that it has added content, disciplines, music, instructors, and new features across its products. But a Barron’s analysis of transcripts of public appearances by executives provided by Sentieo found executives repeatedly made the case for adding content while not raising subscription costs.
Foley said during a Barclays event in 2019 that he picked the number himself because it cost $30 to $35 for just one boutique fitness class in New York City, according to a transcript provided by Sentieo.
“It is a sacrosanct price point,” Foley said. “The $39, we make over time, going to, call it, 70-plus percent margins in the coming years on that $39 a month. And so yes, we are giving you more and more goodness, more content, more software, more class types, more categories, and we’re very excited about that.”
He echoed that sentiment at a Goldman Sachs event in September 2021.
“We’re willing to make the investments, and we are totally committed to increasing the value of our $39,” Foley said at the time. “More software, better features, more content, better content and giving you the scale of more products all for the $39.”
Though Foley is the company’s chairman, McCarthy is now trying to right the ship and win back Wall Street amid calls from some investors for Peloton to sell itself. He is testing out new price points and offerings—including an equipment program called One Peloton Club, which offers equipment as a subscription option. The company also slashed the price of its new strength-training product, Peloton Guide.
It isn’t surprising that McCarthy, a former Netflix (NFLX) and Spotify (SPOT) finance chief, wanted to tap into Peloton’s pricing power. BMO Capital Markets analyst Simeon Siegel told Barron’s that he’s believed the company has had the leeway to raise its subscription price for years, but felt the firm was too ambitious in its efforts to grow its overall base and “democratize fitness.” The company’s shares have tumbled 80% in the past year after the firm overestimated demand for its bikes as lockdowns faded.
“The interesting dynamic of what happened yesterday is that the company lowered the price for new members, while effectively raising the price for existing members,” Siegel said. “That doesn’t sit well with loyalists, with members. So at the end of the day, people that paid more for the bike believe they’re now subsidizing the cost of adding new people into the club.”
And it is a bit of a reversal for McCarthy, who told Yahoo Finance in March that the $39 price for existing members wasn’t “going away.”
“Managements are clearly entitled to changing their opinions in the face of new facts and raising the monthly price of the subscription may well be the right move,” Siegel added. “That said, backpedaling on recent comments that the $39 price would not go anywhere appears to echo prior communication missteps from the company and continues to appear as if management is testing strategies in real time on their members and learning on the fly.”
Write to Connor Smith at [email protected]
Source: https://www.barrons.com/articles/peloton-interactive-stock-subscription-membership-price-51650056101?siteid=yhoof2&yptr=yahoo