Peloton's subscriber base, Q1 losses surge as it acquires Tonic Fitness for more supply chain control

Peloton, the connected fitness, media and platform company, is expecting 885,000 to 895,000 connected fitness subscribers in fiscal 2020.

Peloton's connected fitness subscriber base more than doubled from a year ago in its first fiscal quarter and it acquired Tonic Fitness Technology, a bike manufacturing partner, to gain more control over its supply chain. Peloton is projecting 885,000 to 895,000 connected fitness subscribers for fiscal 2020.

In its fiscal first quarter, Peloton, which recently launched its IPO said it ended the quarter with 562,774 connected fitness subscribers and a member base topping 1.6 million. The company reported a net loss of $49.8 million, or $1.29 a share, on revenue of $228 million, up 103% from a year ago.

Peloton also reported a 94% retention rate over the last 12 months and there were 11.7 average monthly workouts per connected fitness subscriber. The company highlights how multiple industries and functions are going digital, but it's unclear whether Peloton can maintain its premium base when competitors loom

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As for the outlook, Peloton projected second quarter connected fitness subscribers of 680,000 to 685,000 with revenue of $410 million to $420 million. The company added that its fiscal 2020 revenue will be between $1.45 billion and $1.50 billion. Peloton said in a shareholder letter:

We remain focused on driving strong Connected Fitness Subscriber growth and engaging and retaining our growing, scaled Member base. Our Connected Fitness Subscriber guidance is based on the early success of Home Trial, our expectations for a robust Holiday and New Year's resolution season, and continued low Average Net Monthly Connected Fitness Churn. Churn is expected to slightly rise, but stay below 1.05% in Q2 and average 1.05% for the full Fiscal Year 2020. This is due to the expected increase in return rates from Home Trial and the continued expiration of prepaid Connected Fitness Subscriptions offered prior to July 2018. By the end of Fiscal Year 2020, we expect that at least 94% of our Connected Fitness Subscribers will be paying month-to-month.

The metrics highlight the moving parts behind Peloton, which is a vertically integrated company, but one that does everything from media to manufacturing. Key points from Peloton's shareholder letter include:

  • Peloton reported 105,856 digital subscribers, up 116% from a year ago. The company said that the digital-only subscription base serves as a lead-gen model for its connected fitness product sales.
  • The 30-day trial period for potential customers launched Sept. 12 and Peloton is betting that the effort will lower barriers to purchase and lead to marketing efficiencies.
  • The Tonic Fitness acquisition was completed for $47.4 million and closed Oct. 16. "While the acquisition of Tonic brings some of our manufacturing in-house, we will continue to work closely with our other valued manufacturing partners. Tonic, founded by Andy Wu, has been designing and manufacturing innovative stationary bikes since 1985. Peloton began collaborating with Tonic on our Bike in 2013," the company said.
  • Peloton is launching in Germany on Nov. 20 to join UK. The company is producing German-language classes from its London studio.
  • The company launched a new personalized home screen to boost engagement and is expanding to Chromecast for Android as well as Miracast. More smart TVs will be added.
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