Peloton Interactive (PTON 4.29%), the once-booming maker of interactive fitness equipment, just reported another disappointing period. In its fiscal 2022 fourth quarter, which ended June 30, the company posted sales of $678.7 million, down 28% year over year, as well as a net loss of more than $1.2 billion. To make matters worse, the business also lost 100,000 members during the quarter. And shares are down a whopping 94% from their all-time high.
With still-soaring inflation continuing to negatively impact people on the lower end of the socioeconomic spectrum the most, and as more of their income goes toward essentials like housing and food costs, a four-figure Peloton Bike or Tread is certainly not a priority purchase. But the business is trying new things in order to expand its addressable market and attract more cost-conscious customers.
Let's take a look at a worthwhile strategy that management is pursuing which just might boost Peloton's prospects and its stock price.
Peloton wants to be in more households
According to Peloton's investor day presentation from September 2020, 46% of U.S. Bike customers were from households earning less than $100,000. And this proportion was up significantly from a 29% share six years prior. The company doesn't regularly report updated data regarding this metric, but this trend of trying to bring on lower-income customers is hard to ignore. And it's an even bigger focus right now.
Peloton recently launched a rental program, dubbed the One Peloton Club, or what the management team also calls fitness as a service (FaaS). After a $150 delivery fee, consumers can pay $89 per month to rent the Bike for 12 months or $119 per month to rent the Bike+ (this includes the $44 monthly fee for access to the workout content), with the option to purchase the equipment at a reduced price at the end of the trial period. And if at any point the customer isn't satisfied and wants to return the Bike or Bike+, Peloton will send someone to come pick it up for free.
"Our test results show the program is driving increased traffic to the top of our marketing funnel and clearly appeals to a younger, more value-conscious consumer," CEO Barry McCarthy mentioned in the Q4 shareholder letter. Since June, more than 5,000 members have rented the Bike under the program -- and with a churn rate of 3%.
In addition to the FaaS strategy, which I believe should continue to reduce the purchasing friction for customers considering the bike or treadmill, management is trying a couple of other things, like selling certified pre-owned bikes and partnering with Amazon to set up a storefront on the e-commerce giant's website.
Getting its equipment into more households, whether through outright purchases or via the One Peloton Club program, means that Peloton is able to grow its base of extremely sticky users. The average monthly connected-fitness churn, although up substantially in the latest quarter, is still a solid 1.4%. The leadership team believes that once people start using Peloton products and doing workouts, they'll get hooked and will remain subscribers for a long time. So far, this has been true.
Time will tell whether or not Peloton is ultimately able to improve its current situation and right the ship. And for investors, I think it's best to wait until there's some meaningful improvement, particularly that sales start increasing again and the business is better able to control its expenses, before considering buying the stock.
Based on management's fiscal 2023 first-quarter revenue forecast of between $625 million and $650 million (a 21% year-over-year decline at the midpoint) and the expectation of no net subscriber additions, these moves aimed at expanding the company's addressable market aren't expected to provide much of a boost in the near term.
