executives called the company’s $39-a-month subscription price “sacred”, “sacrosanct”, and “our golden goose”. No more.
The maker of interactive bikes and treadmills told followers on Thursday that it was raising the price of its connected fitness membership for the first time. The subscription, which gives users access to digital lessons and scenic rides on Peloton machines (ticker: PTON), will cost $44 in the United States from June. The move stands out among Peloton’s broader turnaround efforts under new CEO Barry McCarthy, who replaced founder John Foley earlier this year.
“Never say never, but I see it as our golden goose, and that $39 price tag is sacrosanct to me,” Foley said. Barrons in 2018, when the company was still tightly owned. “You have to do delicious things and leave money on the table.”
Peloton declined to comment beyond its announcement, which notes that the increase will follow lower equipment prices in all markets. The company also said it added content, disciplines, music, instructors, and new features to its products. But one Barrons analysis of transcripts of leaders’ public appearances provided by Sentieo found that leaders repeatedly advocated for adding content without increasing subscription costs.
Foley said at a Barclays event in 2019 that he picked the number himself because it cost $30 to $35 for a single boutique fitness class in New York City, according to a transcript provided by Sentieo.
“It’s a sacrosanct price,” Foley said. “The $39, we earn over time, let’s call it, margins of over 70% in years to come on that $39 a month. And so yes, we’re giving you more and more good, more content, more software, more class types, more categories, and we’re very excited about that.
He echoed that sentiment at a Goldman Sachs event in September 2021.
“We’re ready to make the investments, and we’re totally committed to increasing the value of our $39,” Foley said at the time. “More software, better features, more content, better content, and giving you the scale of more products, all for $39.”
Although Foley is the company’s chairman, McCarthy is now trying to right the ship and win back Wall Street amid calls from some investors for Peloton to sell out. It is testing new prices and offers, including an equipment program called One Peloton Club, which offers equipment as a subscription option. The company has also reduced the price of its new strength training product, Peloton Guide.
It is not surprising that McCarthy, a former CFO of Netflix (NFLX) and Spotify (SPOT), wanted to harness Peloton’s pricing power. BMO Capital Markets analyst Simeon Siegel said Barrons that he thinks the company has had the leeway to raise its subscription price for years, but felt the company was overly ambitious in its efforts to grow its global base and “democratize fitness”. Shares of the company have fallen 80% in the past year after the company overestimated demand for its bikes as lockdowns eased.
“The interesting dynamic of what happened yesterday is that the company lowered the price for new members, while effectively raising the price for existing members,” Siegel said. “It does not please the loyalists, the members. So ultimately people who paid more for the bike think they are now subsidizing the cost of adding new people to the club.
And it’s a bit of a turnaround for McCarthy, who told Yahoo Finance in March that the $39 price for existing members was not “going away”.
“Managements clearly have the right to change their minds in the face of new facts and increasing the monthly subscription price might just be the right move,” Siegel added. “That said, going back to recent comments that the $39 price is going nowhere seems to echo the company’s past miscommunications and continues to give the impression that management is testing real-time strategies on its members and learns on the fly.”
Write to Connor Smith at [email protected]