The Peloton CEO is okay with losing money on equipment since he sees a future in the software.

56

The Peloton CEO is okay with losing money on equipment since he sees a future in the software. Peloton CEO Barry McCarthy told investors on Wednesday that he is unconcerned about the fact that the company is losing money selling its Bike, Tread, and Row equipment. According to him, the company’s mobile app represents the “road to the promised land” for the company.

McCarthy stated that he is more concerned with Peloton’s aggregate margins, which were positive thanks to the company’s subscription revenue. Peloton posted negative margins for its pricey connected fitness products during the holiday quarter. However, McCarthy said that he is more concerned with those margins.

Read more: Interest Rate Increases By The Federal Reserve Are Anticipated To Slow In 2023.

“When we look at the income stream and the expenses connected with it, which include the cost of the hardware and the cost of the subscription, we take a holistic picture,” McCarthy stated this sentiment during the results call for the company. “So from my side, I don’t particularly care about the hardware margin,” McCarthy remarked.

“I care about it on an aggregate basis, and I care about the relationship between the lifetime value of the customer and the cost of acquisition,” he added. “I care about the relationship between the customer’s lifetime worth relative to the acquisition cost.”

The workout equipment manufacturer Peloton posted a loss of $42.8 million on its connected fitness goods during its fiscal second quarter of 2023, which ended on December 31. This resulted in the division’s gross margin falling to a negative 11.2%.

Because of the $277.9 million that Peloton made from its subscription business, which had a gross margin of 67.6%, the company’s overall gross margin remained stable at 29.7%.

Even though quarterly subscription income was virtually unchanged from the previous quarter, it continued to outpace sales of Peloton’s connected fitness gadgets for the third quarter. McCarthy indicated to CNBC that it might be a “changing moment” for the corporation.

McCarthy stated that his primary goal is to expand Peloton’s total market share by reaching a user base that it hasn’t been able to access in the past when asked about how the app, which features on-demand workout classes from the company’s pseudo-celebrity instructors, fits into the overall strategy of the exercise equipment company. The app features on-demand workout classes from the company’s pseudo-celebrity instructors.

Peloton’s all-access membership, which can be used on the company’s connected workout equipment, costs $44 a month, but the app, which does not require any Peloton hardware, costs only $12.99 per month. This price difference is because the app does not require any Peloton hardware.

McCarthy shared his thoughts, saying, “I think of it as its endgame.”