On Wednesday, Peloton’s new CEO told CNBC correspondent Jim Cramer that he was looking into the pricing of the company’s connected fitness products as part of an overall effort to grow its customer base and revenue.
Peloton’s Barry McCarthy’s comments came in an interview with Mad Money, his first televised interview since taking over as CEO and president earlier this month at a critical time for the beleaguered company.
“I think we have a huge opportunity to change the business model and significantly increase [total addressable market] for new members by lowering the cost of entry and experimenting with the ratio between monthly recurring income and upfront income,” McCarthy said.
Peloton could also improve the user experience of its Bike and Tread products to increase “consumer satisfaction … in ways we haven’t yet imagined,” McCarthy said, suggesting this is another way to expand the company’s pool of potential customers.
“Therefore no. I don’t focus on raising prices. I’m focused on doing the exact opposite and figuring out how much price elasticity exists for the business,” said McCarthy, whose background dwells on subscription service innovators Spotify and Netflix. considered valuable for his role in Peloton.
In addition to the upfront cost of purchasing a Bike or Tread product, Peloton also makes money through monthly subscriptions that give users access to their on-demand fitness activities. Investors generally place more value on recurring revenue streams such as subscriptions than on revenue generated from the sale of physical products.
Peloton saw huge growth during the Covid pandemic but has seen demand for its equipment drop as people spend less time at home and return to gyms, causing a temporary halt in production. Along with McCarthy’s appointment as CEO, the company also laid off roughly 20% of its corporate workforce to keep costs under control.
Peloton’s market capitalization was nearly $50 billion in January 2021, but it has slumped to $8.95 billion based on Wednesday’s closing share price of $27 per share.
Although there were reports in the press that Peloton was a potential takeover target, McCarthy told Cramer that he saw a promising path for the company. According to him, this is what prompted him, in fact, to retire for the sake of work.
“A product that fits the market is incredibly hard to find, and there are only a few companies on the planet that have it. Peloton is one of them, although it has made a few mistakes lately,” McCarthy said. “But once you have it, it’s almost impossible to destroy, and I thought that combining all these assets with some operational rigor would lead to a very bright future for this business.”
At the same time, McCarthy acknowledged that more work remains to be done to restore Wall Street’s confidence. Under previous management, Peloton had to slash its full-year earnings forecast and also raise money by selling shares just weeks after saying it didn’t need to raise additional capital.
“Until we can prove that we can predict the performance of the business and justify those forecasts with expectations, there will be some uncertainty in the business,” McCarthy acknowledged. “Having said that, from where I’m sitting today – given what I know and still have a lot to learn about the business – I feel like we’re pretty well capitalized for the challenge ahead.”
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