Peloton (PTON) just made a major announcement that customers may not be too thrilled about.
After revealing in its fourth-quarter earnings report for 2024 that its membership numbers declined by 2% year-over-year, and its connected fitness products revenue shrunk by 4%, the company is opting to make a drastic move to boost its profits.
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During an earnings call on Aug. 22, which discussed the report, Peloton Interim Co-CEO Chris Bruzzo revealed that customers who buy used Peloton bikes from third parties will face a hefty “used equipment activation fee.”
“Although these secondary market sales are not from Peloton-owned channels or any of our third-party distribution partners, we want to ensure these new members receive the same high-quality onboarding experience Peloton is known for,” said Bruzzo. “With that in mind, we're initiating a new one-time $95 used equipment activation fee in the U.S. and Canada.”
To lessen the blow, the $95 fee will include a “virtual custom fitting” that members can take advantage of to “get the most out of their bike.” Also, members will have access to discounts on accessories that are offered by the company such as “bike shoes, bike mats and spare parts.”
Bruzzo also stated that the activation fee will be “a source of incremental revenue and gross profit” for the company, which will help it improve the “fitness experience” for members.
In the earnings report, Peloton also revealed that despite declines in membership, its total revenue during the quarter was roughly $643 million, which is a small increase from the $642 million it earned during the same time period in 2023.
The company’s gross profit, however, saw a major spike, increasing by 55%, compared to the same quarter last year.
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Peloton's new fee also comes when the company expects its hardware sales to begin declining. In the earnings report, Peloton predicts that during the current quarter, subscribers using its hardware will drop by 3% year-over-year, and its paid app users will also shrink by 26%.
Peloton Chief Financial Officer Liz Coddington claimed during the earnings call that the expected decline in hardware sales is “based on multiple factors.”
“From a market perspective, the first quarter is typically a seasonally low quarter for hardware sales as consumers shift their discretionary spending toward categories like travel and sporting goods during the summer months,” said Coddington. “We also expect continued sales headwinds as a result of an uncertain macroeconomic environment. Additionally, with our focus on improving profitability, our sales outlook reflects some decisions we've made that we expect to have an impact on our hardware sales in the quarter.”
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