Peloton Interactive, Inc. Q1 FY2025 earnings call

CEO Search

• Peter Stern to assume CEO and President role on January 1, 2025, with extensive experience in hardware, software, services, and content across companies like Ford, Apple, and Time Warner Cable.

Cost Restructuring

• On track to deliver over $200 million of run rate cost savings by the end of fiscal year '25, with $100 million of annualized payroll savings achieved as of Q1.

Financial Results

• Q1 GAAP operating income was $13 million, free cash flow was $11 million, and adjusted EBITDA was $116 million. Paid connected fitness subscribers totaled 2.9 million, and paid app subscribers were 582,000.

International Business

• Raised bike prices in all international markets, transitioned Germany operations to third-party retail/distribution model, with paid connected fitness subscribers in international markets growing 8% year-over-year.

North American Retail

• Closing underperforming first-party retail stores, testing a smaller store concept in Nashville, and expanding third-party/online retail, including Bike+ availability at Costco.

Marketing

• Reduced sales and marketing expense by $64 million year-over-year, focusing on targeting men, growing the Tread business, and optimizing LTV to CAC ratio.

Product Innovation

• Launched software updates for engagement, public beta of Strength+, game-inspired fitness experiences, personalized plans, and private teams feature.

Content

• Continued instructor-led content, including the All for One event with popular musicians, and new offerings in various fitness modalities like Strength for Soccer and Walking Boot camps.

Connected Fitness Products: Revenue was $160 million, down 12% year-over-year, contributing 27% to total revenue. Gross margin was 9.2%. Subscription Revenue: $426 million, up 3% year-over-year, contributing 73% to total revenue. Subscription gross margin was 67.8%.

Q2 FY '25

• Paid connected fitness subscribers expected: 2.84 million - 2.86 million
• Paid app subscribers expected: 560,000 - 580,000
• Revenue expected: $640 million - $660 million
• Adjusted EBITDA expected: $20 million - $30 million

FY '25

• Total revenue guidance: $2.4 billion - $2.5 billion
• Total gross margin guidance: 49.0%
• Adjusted EBITDA raised to $240 million - $290 million
• Free cash flow target: At least $125 million

• Macro environment uncertainties impacting consumer spending
• Uncertainty regarding timing and magnitude of software innovation's impact on retention/engagement
• Seasonal mix shifts affecting gross margin

Q: Thoughts on Peter Stern's approach to balancing growth and profitability?

A: Karen Boone believes Peter will balance growth and profitability, with a focus on execution and innovation, having a growth mindset and aligning with Peloton's values.

Q: Inventory composition and implications?

A: Slight inventory growth due to seasonal buildup ahead of holidays, with supply chain efforts to reduce production and improve efficiency.

Q: Churn expectations for the rest of FY '25?

A: Churn expected to remain above prior year due to secondary market subscriber mix, but below 2% overall.

Q: Incremental demand pockets?

A: Targeting men through marketing, leveraging referrals from existing members, and partnerships like Costco.

Q: Retail and international expansion plans?

A: Reimagining retail with smaller stores and third-party partnerships, strategic international expansion with localized content.

Q: Marketing learnings and LTV to CAC path?

A: Disciplined marketing, focusing on audience targeting, and improving LTV through gross margin improvements.

Q: Holiday go-to-market and industry trends?

A: Disciplined media spend, focusing on referrals and third-party partnerships; industry fitness market declined, gyms growing.

Q: Content investment and strategy?

A: Continued investment in instructor-led and non-class-based content, including gaming and personalized experiences.