Peloton CEO Barry McCarthy doesn’t care, bikes, tracks 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

peloton CEO Barry McCarthy told investors Wednesday he doesn’t care that the company is losing money on its Bike, Tread and Row equipment. According to him, “the path of business to the promised land” is his mobile application.

Peloton reported negative holiday quarter margins for its high-priced connected fitness products, but McCarthy said he was more concerned about aggregate margins, which were positive thanks to the company’s subscription revenue.

“We take a holistic view of the revenue stream and costs associated with both the hardware and the subscription associated with it. So, for my part, I don’t really care about hardware margins,” McCarthy said during a phone call about the company’s earnings.

“I care about it in aggregate, and I care about the relationship between customer lifetime value and acquisition cost,” he said.

To the peloton second fiscal quarter 2023ended Dec. 31, the fitness equipment company lost $42.8 million on connected fitness products, leaving the division’s gross margin at minus 11.2%.

The company’s total gross of 29.7% was kept afloat by Peloton’s $277.9 million generated from its subscription business, at a margin of 67.6%.

While subscription revenue was virtually unchanged from the previous quarter, it outperformed sales of Peloton’s connected fitness products for the third consecutive quarter. McCarthy told CNBC that it signals a possible “turning point” for the company.

Asked about how the app, which features on-demand classes from the company’s pseudo-celebrity instructors, fits into the overall fitness equipment company strategy, McCarthy said its main goal is to increase Peloton’s overall market share by reaching out to the user base. which he previously did not have access to.

The app, which does not require any Peloton hardware, is $12.99 per month, compared to $44 per month for an all-access company membership that can be used on connected fitness equipment.

“I think of it as my own end game,” McCarthy said.

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