Dive Brief:
- Peloton CEO Barry McCarthy is stepping down as the company’s chief executive, president and board director. He will act as a strategic adviser to the company until the end of the year, according to a company press release.
- The fitness company has appointed Karen Boone, Peloton’s current chairperson, and Chris Bruzzo, a company director, to serve as interim co-CEOs as it begins its search for McCarthy’s successor. Peloton also named Jay Hoag, company director, as its next chairperson.
- The leadership change came as the company announced plans to lay off 15% of its global workforce, affecting about 400 employees, as part of a restructuring effort aimed at “align[ing] the company’s cost structure with the current size of its business,” according to a separate press release.
Dive Insight:
Peloton is looking for its next leader as it undergoes another restructuring.
The cost-cutting efforts are intended to reduce expenses by more than $200 million by the end of 2025 fiscal year, with a significant portion of those reductions taking place immediately, according to the company. In addition to layoffs, Peloton will continue to reduce its showroom footprint and reevaluate its international strategy to be more “targeted and efficient,” noting that it will not exit any existing international markets. About $100 million in those reductions are related to payroll, while the other half are related to things like lower spending on brand and creative marketing, reducing its retail footprint, lower contractor spending and reduced spending on IT and software, CFO Liz Coddington told analysts Thursday.
“While these decisions are always difficult, they have been made carefully to ensure that we can continue to provide the best fitness experience for our members and maintain positive free cash flow over the long term,” the company said in its shareholder letter. “We will continue to invest in innovation across our software, hardware and content portfolio and in improvements to our member support experience to meet the needs of current and future members.”
McCarthy — who joined the fitness brand after holding senior leadership roles at Spotify and Netflix — was at the helm for just over two years, but his time was marked by a lot of change at Peloton.
He was appointed Peloton’s chief executive in February 2022, succeeding Peloton co-founder John Foley as CEO. At the time of that announcement, the company also said it would lay off about 20% of its corporate positions, impacting some 2,800 jobs globally.
In the years since his appointment, McCarthy oversaw much change and restructuring that, in addition to layoffs, included a brand relaunch, store closures, C-suite exits and the release of a tiered membership structure for its app. Peloton recently removed the free tier of its app membership, which included access to more than 50 classes at no cost. The company’s other membership tiers include Peloton App One, which costs $12.99 a month, and Peloton App+, which costs $24 a month.
Part of the reasoning to remove the free tier was to help improve conversion from trial to paid membership, CFO Liz Coddington said. “We still believe in the app — the app is an important part of our Peloton fitness experience and platform,” Coddington added. “We’re continuing to invest in that product innovation.”
In its third quarter, which the company reported results from on Thursday, Peloton’s ending paid app subscriptions fell 21% year over year to 674,000, while app subscription revenue increased 2.4%. Peloton also experienced a higher than expected churn rate for average monthly paid app subscriptions at 9.2%, which the company said was “primarily driven by subscription cohorts whose legacy pricing for App+ expired.”
As a result of the challenges it’s facing related to the app, the company is holding back on media investment as it reevaluates its tiered pricing strategy and subscriber acquisition funnel.
The company also reported third-quarter total revenue fell 4% year over year to $717.7 million, with connected fitness products revenue declining 14% to $279.9 million and subscription revenue increasing 3% to $437.8 million. Net loss narrowed to $167.3 million from $275.9 million in the year-ago period. Peloton also noted that it achieved positive free cash flow for the first time in over three years. Peloton’s member base during the period declined 1% year over year to 6.6 million.
For the year ahead, Peloton has adjusted its outlook. The company now expects its ending paid connected fitness subscriptions to be down 1% at the midpoint, compared to prior guidance of being flat year over year. Peloton also anticipates ending paid app subscriptions to be down 27% year over year, compared to its previously projected decline of 9%. The company projects revenue to fall 4% year over year at the midpoint, down from a previously expected 3% decline. Peloton did raise its guidance for total gross margin and adjusted EBITDA, expecting those to grow by 1,152 basis points and 94%, respectively.
