With its key performance indicators sprinting ahead of the pack, Peloton’s delivery issues continue to drag on the connected fitness company’s performance. As detailed on its earnings call Thursday (Feb. 4) the digital-first economy produced its first $1 billion quarter and stunning retention metrics. But its inventory constraints will lead to higher spending on shipping and will dent future profits. CEO John Foley said he is allocating $100 million to address the shipping problems.
“There’s a container shortage,” Foley told analysts on the earnings call. “There are container ships sitting out on the ocean. There is a backlog to get those containers unloaded. And so this investment is essentially to circumvent all of those issues so that we can prioritize getting our major warehouses stocked up so that we can take down that order to delivery as quickly as we possibly can. But we’re certainly in our forecast now taking all of these new factors into consideration when we’re planning out when that inventory is going to hit. This $100 million will give us a massive jumpstart.”
To an extent, Peloton’s shipping issues are a byproduct of its success. In its shareholder letter, the company made clear that the continued presence of the virus and the correlating stay-at-home economy further increased demand for its bikes and treadmills. The treadmills, originally slated for March delivery in the US, have been pushed to May. It’s indicative of the problems that stemmed from not being able to meet its predicted supply.
The numbers reported Thursday clearly showed that consumers are demanding more product, but it also showed that they’re using the equipment they already own. The company was reporting on the period ended Dec. 31, 2020, which is the second quarter of its fiscal year. Total revenue was $1.06 billion, a 128 percent jump over 2019. It reported 1.67 million connected fitness subscriptions (users paying for classes on Peloton equipment), for 134 percent year-over-year growth. Paid Digital Subscriptions (accessed from other devices as well as Peloton’s) grew 472 percent over 2019 to approximately 625,000. Peloton’s churn rate continues to be astoundingly low, under 1 percent.
“All these investments we’re making in terms of getting household members engaged is working,” Foley said. “We don’t know if it’s correlation or causation, but what is absolutely true is that the more modalities that a member is engaged with, the stickier they are. And that’s within an incredible retention rate among the overall membership.”
Foley also addressed the effect the pandemic has had on Peloton’s business, and the company’s prospects for the post-pandemic future.
“What’s clear is the shift into the home is not a COVID-led phenomenon,” he said. “It has accelerated it. There’s a secular shift into business in the home. It’s a better experience and a better place at a better value, and consumers are all seeing that. Some of the research we’ve done on going back to the gyms and consumer perception vis-a-vis home workouts suggest that certainly, COVID has been a tailwind for our demand. But in terms of demand for Peloton products and connected fitness in the home, we see continued momentum in the foreseeable future.”