Peloton CEO Barry McCarthy doesn’t care about bikes, treads lose money

Barry McCarthy speaks during an interview with CNBC on the floor of the New York Stock Exchange (NYSE), October 28, 2019.

Brendan McDermid | Reuters

Platoon CEO Barry McCarthy told investors on Wednesday that he doesn’t care if the company is losing money on its Bike, Tread and Row gear. The company’s “path to the promised land”, he said, is its mobile app.

Peloton posted negative margins during the holiday quarter for its pricey connected fitness products, but McCarthy said he was more concerned about overall margins, which were positive thanks to the company’s subscription revenue.

“We take a holistic view of the revenue stream and expense associated with both hardware and the associated subscription. So, on my end, I don’t particularly care about hardware margin,” McCarthy said. during the company’s earnings call.

“I care about it on an aggregate basis, and I care about the relationship between customer lifetime value versus cost of acquisition,” he said.

During Peloton’s second fiscal 2023 quarter, which ended Dec. 31, the exercise equipment company lost $42.8 million on its connected fitness products, bringing the division’s gross margin to minus 11.2 %.

The company’s overall gross margin of 29.7% was buoyed by the Peloton of $277.9 million made from its subscription business, at a margin of 67.6%.

While subscription revenue was effectively flat quarter over quarter, it outpaced sales of Peloton’s connected fitness products for the third consecutive quarter. McCarthy told CNBC that this signals a possible “turning point” for the company.

Asked how the app, which offers on-demand workout classes from the company’s pseudo-famous instructors, fits into the exercise equipment company’s overall strategy, McCarthy stated that his main goal was to expand Peloton’s total market share by reaching a user base that he was unable to access before.

The cost of the app, which requires no Peloton equipment, is $12.99 per month, compared to $44 per month for the company’s all-access subscription that can be used on its connected fitness equipment.

“I think it’s its own endgame,” McCarthy said.

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