Peloton’s stock is down, after quite a ride.

Peloton (PTON) is widely expected to deliver a year-over-year decline in earnings even though revenues are up, for the quarter ended December 2021. And the stock has been in a steady decline for the past six months, with a 12 month drop in share price from a high of $157.83 in Feb of 2021 to today’s price of $22.81.

What’s happened to this darling of the subscription world?

Peloton Photo by Tony Webster

First of all, let me just say that I am still riding my Peloton regularly (favorite instructors: Cody, Christine, Leanne). I think the product is brilliant–the hardware, at least for us, “just works” day in and day out, and the software continually improves. I really enjoy the classes and the ability to track my own progress. And while I haven’t really dived into the community or the benefits of riding live with friends or people who share my #hashtag — I see the value.

It’s a great product, and a fair value, at least for me.

So why the declining valuation?

Peloton enjoyed incredible growth during the first year or so of COVID–we were all stuck at home and wanted to exercise. For a while, it was hard to get your hands on a bike or tread because of the high demand. This was great for revenue, earnings and valuation. However, this proved to be a “pulling forward” of demand, rather than an expansion of demand. In other words, people who might have purchased a bike or tread in 2022, bit the bullet and purchased in 2020. Which means that there aren’t as many people in the “prospect category” in 2022–because they’re now in the “owner category”.

A second reason may be that owners aren’t riding as often. I haven’t seen data on this, but it seems logical that as we are increasingly able to attend gyms and group fitness programs, our use of our home equipment declines. On top of that, many people are “serial monogamists” when it comes to fitness…

  • 2017? That was the year I joined Equinox
  • 2013? I was obsessed with Bikram Yoga
  • 2022? Investing more time with weight training
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As we are seeing with streaming media, consumers crave variety with fitness. Peloton does have an advantage here with their pricing model though. With streaming media, it’s easy to cancel (or pause) HBOMax for a few months while binging Netflix. But with Peloton, there’s a big cash outlay up front, which makes it emotionally harder to abandon.

According to a recent article from CNN about Peloton pricing, it’s still quite expensive to buy their equipment:The price of the bike in the United States will jump to $1,745 and the Peloton Tread will soon cost $2,845. Peloton also said it will hike the base price of both pieces of equipment for customers in the United Kingdom, Germany and Australia, although it will continue to include delivery and setup for no extra charge.

A high entry price like this creates friction in joining–you have to take a big leap to spend 4 figures on a piece of equipment. However, once you’ve made the purchase, you’re more motivated to get value from it. You’re invested in getting value, so more likely to use it.

Additionally, Peloton has a subscription, which provides access to live classes as well as a catalog of recorded classes and some other benefits.

Peloton has made some interesting decisions around their subscription app.

First, Peloton requires purchasers to subscribe to their content. If you access it on on the tablet that’s attached to the bike or tread, you can track your history, effort and progress. You can also connect with (and compete with) other members of the community.

But you don’t have to own the equipment to subscribe.

Peloton has two subscription offerings

  1. All Access Membership (AAM): Peloton membership for the whole household, used with Peloton Bike or Tread. ($39/month)
  2. App Membership: Individual Peloton App (IPA) access to thousands of classes via phone, tablet, TV and web. ($12.99/month)

There’s a lot to unpack with the two subscriptions.

BTW, can anyone tell me why one option is a flat dollar amount while the other has the .99 at the end?

If you buy a Bike or Tread, Peloton bundles in a year or more to The All Access Membership. I find this interesting. It makes sense because if you were to buy the equipment without the subscription, you wouldn’t understand the full value of the equipment. Without the subscription, the equipment is not that differentiated from other exercise equipment but is much more expensive. So I like that they “force” you to try it. But why 12 months?

The All Access Membership also gives unlimited access to family members and across multiple hardware devices. So if you have the Tread and the Bike, you only need one subscription. And you can create accounts for your SO and kids at no extra charge. I think they do this as a way of building habits. If there’s a Tread or Bike in the garage, and it’s free to add kids to the membership, they might try it and become hooked. This AAM becomes an acquisition tool for tomorrow’s purchasers. This is similar to many other subscriptions that offer family memberships as a means of rapidly building footprint–think Spotify or Netflix.

Additionally, by not charging for each hardware device, the AAM emphasizes the “membership” vibe of the offering. Once you’re in, you’re in–no more costs (unless you want to buy shoes, a mat, or any of the other accessories).

The IPA is much less expensive–because without the equipment, it’s not so differentiated. There are many apps that provide high-quality video fitness classes. But I believe one could subscribe to the IPA and then log into their neighbors equipment (or their gym equipment), at this lower price. This product is also about driving acquisition–you can check out the classes before buying the bike or tread, and if you have access to the equipment, you can get the full experience before plunking down four figures.

What is surprising to me is how secretive Peloton has been about real retention. I would like to know what retention is like on the AAM after the bundled period, and also would like to know what engagement looks like throughout. I’d also like to know for the IPA what percent of subscribers eventually upgrade to ownership and AAM. These kinds of numbers would help us really evaluate the power of the membership and how engaging the products actually are.

For now though, my AAM is current, and I don’t see any alternatives that are this appealing.