Issue No. 198: Peloton’s Pivot

Illustration: Courtney Powell

Peloton is revamping its business model and rethinking the merits of connected fitness.

By the Numbers

Reporting fiscal fourth quarter results last week, Peloton posted a net loss of $1.2B.

Marking six consecutive quarters in the red, and sitting on $1.1B in excess inventory, the company also saw revenue drop and membership decline as churn ticked up.

Looking on the bright side, CEO Barry McCarthy sees “significant progress driving our comeback.”

Attempting to right-size the business, the quarter’s losses included $415M in costs related to a broader $800M restructuring effort.

Since assuming the chief executive role in February, McCarthy has cut 3K+ jobs, closed showrooms, retooled equipment for self-assembly, unveiled a rental program, and just inked a distribution partnership with Amazon.

A risk, the company wants to maintain its premium positioning while also courting the masses.

No easy feat, as McCarthy dismantles founder John Foley’s vision for connected fitness, he remains committed to his predecessor’s goal of reaching 100M members.

The Dream

From the outset, Foley aspired to be a great technological innovator.

On multiple occasions, he said as much, comparing Peloton to Apple and Tesla.

Building “one of the most innovative companies of our day” and “biggest consumer-product brands in the world,” Foley was clear: Peloton wasn’t just another fitness company.

In his opinion, fitness equipment is a “dopey category with dopey products.” And gyms, like movie theaters, bookstores, and arcades, were ripe for disruption.

Playing the disruptor role, Peloton defined itself as a “technology, media, software, product, experience, fitness, design, retail, apparel, and logistics company.”

But more than that, charging a premium and attracting a cult-like following, Peloton became a religion.

Putting the “connected” in connected fitness, Foley believed Peloton’s magic was born from the integration of hardware and software, enabling a fully immersive workout experience.

Taking cues from Jobs and Musk, Foley pursued a vertically integrated, direct-to-consumer model where Peloton owned every aspect of the member experience.

Proving the naysayers wrong, from 2016–2020, Peloton grew revenue 100% YoY. In 2019, the company went public, notching an $8B valuation. A few months later, as the pandemic propelled Peloton to new heights, Foley completed the tech innovator’s journey, stating:

“I see this as clear as day: this thing is going to be one of the few $1 trillion companies.”

The Reality

In many ways, the pandemic was the worst thing that could have happened to Peloton.

Convinced his dream had come to fruition, and believing that lockdown-level demand would last forever, the company suffered through a series of miscues under Foley’s guidance, ultimately leading to his dismissal.

In an alternate reality, absent a global pandemic, maybe Peloton goes on to build the Apple of Fitness.

But now, as Barry McCarthy attempts to orchestrate a turnaround, he’s downplaying much of the hype surrounding Foley and Peloton:

“Founders walk this fine line between reality distortion, which is the vision of the thing they’re trying to build, and the capacity to see the world as it is… Did they scale their fixed cost structure proportional to the growth in revenue? No. Why? Because they assumed COVID was the new normal. And it wasn’t.”

Unlike Foley, who thought integration was the secret sauce, McCarthy disagrees. “The magic doesn’t happen in the sheet metal,” he said. “The magic happens on the screen.”

Good, better, best. Charting a new course, McCarthy is prioritizing content and community in hopes of appealing to a wider audience and optimizing subscription revenue.

To that end, on the latest earnings call, McCarthy laid out the company’s “good, better, best strategy… targeting not only the premium segment of the market, but the value segment of the market.”

In addition to outsourcing manufacturing, exiting brick-and-mortar retail, and nixing white-glove delivery, this new plan includes:

  • Selling through Amazon and other third-party retailers to offload inventory and widen the brand’s presence.
  • Expanding its rent-a-bike program to eliminate upfront equipment costs and remove barriers to the Peloton ecosystem.
  • Enhancing its digital app to include tiered pricing and more features — the company has fewer than 1M app-only subscribers.

In the works, McCarthy has hinted at making Peloton’s content available on workout equipment from other brands.

Another possibility, going all in on fitness-as-a-service, Peloton could create an integrated platform for all aspects of well-being.

Looking ahead: Marrying the best of Foley’s vision for immersive workouts with a pragmatic approach to sustainable revenue, the company will attempt to straddle the line between connected fitness innovator and commodity.

According to McCarthy, the company’s big pivot will take time. But he remains confident that Peloton will reach 100M members. For now, they have about 93M to go.

☀️ Fitness Anywhere

Outdoor workouts are outlasting the pandemic.

On the Fitt Insider Podcast: BeaverFit North America co-founder Mike Taylor discusses untapped opportunities in outdoor fitness.

We also cover: How BeaverFit went from offering only one product to building multi-million-dollar facilities, supplying the US military, and scaling its commercial business.

Listen to today’s episode here

💪 Back to Business

After buying TRX out of bankruptcy, its founder Randy Hetrick is back at the helm.

For context: Founded in 2014, TRX is known for suspension training straps.

In 2018, TRX was acquired by private equity, and in 2020—the last year Hetrick held the CEO role—TRX had its best financial year to date, posting $20M EBITDA.

Flash-forward. This June, citing increased competition and macroeconomic challenges, the company entered Chapter 11 bankruptcy and sought a new buyer. That buyer turned out to be Randy Hetrick.

Purchasing TRX at auction with partner Jack Daly of JFXD Capital, Hetrick believes he can engineer a turnaround.

“TRX remains one of the fitness industry’s most recognizable and influential global brands, and under a new, experienced management team – powered by passion and renewed vision – our brand will build on its position as the most trusted name in fitness.”

Between the lines: In conversations with top industry executives, nearly everyone said brands must meet exercisers wherever they are… which has been TRX’s mission from the beginning.

Takeaway: Leveraging its equipment’s versatility, and Hetrick’s spinoff mobile fitness company OutFit, TRX will attempt to revive that pursuit quickly.

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😃 Be Happy

Ahead of launching its mood-tracking smart ring, Happy Health announced $60M in a Series A round led by ARCH Venture Partners.

What it is: Founded in 2019, the Austin-based company has been working with neuroscientists and psychologists on its first product, the Happy Ring.

Using electrodermal (EDA) sensors, the ring measures the sympathetic nervous system — reading mood changes or stress via your sweat.

Leveraging AI, the membership-based platform recommends breathing exercises and journal prompts based on your emotional state, sleep quality, temperature, and heart rate.

Trend watch. Happy Health hits on two trends we’ve been tracking.

  • Beyond smartwatches, next-gen health wearables are decoding sleep, glucose, stress, hydration, and more.
  • Companies like Oura, Movano, Circular, and now Happy Health want to replace wrist-worn devices with their high-tech smart rings.

Looking ahead: A new approach to connected mindfulness, Happy hopes to combine biofeedback and sweat-tracking sensors to enhance mental well-being. But, they’ll face a growing list of competitors who also want to help us chill out.

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❓ AUA: Ask Us Anything

We’re trying something new!

Send us your questions about industry trends, business ideas, pitch feedback, or well… anything really, and we’ll answer as many as possible.

Plus, we’ll feature some of the best questions here in the newsletter. (We’ll check with you before sharing anything publicly.)

To submit a question: Reply to this email or leave a comment here. We’re pumped to hear from you!

📰 News & Notes

💰 Money Moves

  • UK-based CBD beverage maker TRIP added $12M in new funding.
    More from Fitt Insider: Functional Beverage Boom
  • Pickup soccer platform Street FC closed a $2M seed round led by Will Ventures.
  • Freedom Biosciences, developer of ketamine and psychedelic therapeutics, raised $10.5M in a seed round led by MBX Capital.
    More from Fitt Insider: Psychedelics as Medicine
  • Digital physical therapy startup Ventrk received a $1M investment from HBSI Capital.
    More from Fitt Insider: The Business of Movement Health
  • Plume, a virtual healthcare platform for the transgender community, secured $24M in a Series B led by Transformation Capital.
  • Alma, a membership-based mental health platform, raised $130M in a Series D round led by Thoma Bravo.
  • Mental health education platform Psych Hub closed $16M in a round co-led by HC9 and Frist Cressey Ventures.
  • Alongside, a mental health platform for schools, landed $5.5M in a seed round.
  • Planet Fitness franchisee Excel Fitness acquired 14 locations from Virginia-based franchisee KSMA, bringing its portfolio to 107 gyms.
  • Kuli Kuli, maker of gummy moringa supplements, received $1.3M from Whole Foods Market and others.
    More from Fitt Insider: The State of Supplements
  • Cell-grown meat company Aleph Farms added $40M from L CattertonStrauss Group, and others.
  • Creatd Ventures acquired plant-based food company Brave, maker of healthy breakfast products.
  • Health data company CuriMeta secured $6M in a seed round led by Washington University School of Medicine.

Today’s newsletter was brought to you by Anthony Vennare, Joe Vennare, and Ryan Deer. 

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