Peloton CEO says biggest challenge continues to be growth at scale

CEO Barry McCarthy said in a shareholder letter, “For the second consecutive year we reported strong Q2 results, outperforming on paid subscribers to Connected Fitness and App, gross margin and free cash flow. Q2 is our most important quarter of the year from a sales standpoint. On the road to recovery, good performance every quarter matters, but Q2 matters most of all. Our guidance for the remainder of FY24 represents our current best thinking about the future performance for the business, but I’ll be disappointed if we can’t figure out how to improve our performance during the quarter, like we did in Q2. While we continue to outperform the connected fitness market, our biggest challenge continues to be growth, at scale. Those of you who have followed the business know we’ve launched a number of new growth initiatives over the last two years. Overall I’m extremely pleased with the new muscles we have developed in this regard. We’ll strengthen these muscles as we continue to explore ways to ignite growth across multiple vectors. Several of these new initiatives have performed strongly. Some have not. We review both in this quarterly update, beginning with the failures. If we’re not failing, we’re not being aggressive enough testing new initiatives. One initiative that hasn’t worked is our premium co-branded Bike experiment with the University of Michigan. Notwithstanding the football team’s success winning the national championship, we sold substantially fewer Bikes to alumni and boosters than we expected. What seemed like a good idea didn’t deliver. So instead of launching additional co-branded bikes in school colors, we will end-of-life this hardware initiative. Another area of the business which failed to meet our performance expectations was Member Support. This past holiday season was particularly taxing for Members. The Member Support experience has tarnished our brand, and we simply must do better. The team is currently in the middle of a reboot. New leadership. New systems. New third party vendors. New training. New staff. I’m confident we’re on the right path this time. I’m confident in the new leadership, and I’m confident that in the next few months our Members will be receiving the level of service they deserve and expect and that we can be proud of…When I first joined Peloton, I spoke publicly about two primary goals for the business: stop the bleeding and return the business to growth. My primary goal for FY24 has been to restore the company to positive free cash flow for the full year. Based on our updated forecast, we now expect the business to generate positive free cash flow in Q4 but to fall short of achieving our goal for the full year. We also expect to end the fiscal year with a net increase in unrestricted cash compared to our Q2 balance. If we grow our cash balance and generate free cash flow, we will have stopped the bleeding. As for the goal of restoring revenue growth, we expect to meet that goal in 4Q24.”