What happened
Peloton Interactive (PTON -2.24%), which has had significant struggles of late, took a nearly 4% blow to its share price on Thursday. Investors were clearly concerned about media reports regarding a potential new business model for the company.
So what
Thursday morning, The Wall Street Journal reported that management is considering an alternate pricing system for Peloton's offerings. Under the new system, customers would pay a monthly fee that covers the cost of both a Peloton stationary bike and a subscription to the company's many remote video-exercise classes. The customer has the option of canceling anytime, free of charge.
Image source: Getty Images.
The company plans to roll out this pricing option basically as a pilot program in selected U.S. cities. According to the Journal, it will be offered at select company stores in Minnesota, Florida, and Texas, although specific municipalities were not mentioned. Denver, Colorado will apparently be one of the locales.
The initiative comes as recently installed CEO Barry McCarthy looks for ways to shore up Peloton's business. The company had significant success in the thick of the coronavirus pandemic, when many exercise enthusiasts were essentially trapped at home for long stretches of time while gyms were closed. It has struggled to regain that momentum.
The Journal quoted McCarthy as saying of the new initiative, "Let's get in the market and let the customer tell us what works."
Now what
While this pricing model seems attractive and could be a winner if properly implemented, it raises two major points of concern for investors. First, it could be indicative of a company struggling to figure out how to best sell its products or, in the worst case, a desperate effort by a flailing business.
Second, offering Peloton's once-pricey hardware/streaming-video subscription package at what's effectively a discount is sure to affect the bottom line, and the company is becoming increasingly notorious for posting net losses.
