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Apr 14, 2022

Peloton will slash bike and treadmill prices, raise subscription fee

Activist urges Peloton sale

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Peloton Interactive Inc. is slashing prices for its three major hardware products while boosting the cost of its subscription, part of a comeback plan that centers on generating more recurring revenue.

The price of Peloton’s original Bike will now be US$1,195, down US$300, and the higher-end Bike+ will drop US$500 to US$1,995. The fitness company’s treadmill will cost US$2,345, down US$150. 

“We want more people to be able to afford our hardware,” the New York-based company said in a statement. “This is a strategic decision to play for scale and increase market share.” 

To offset the lower cost of the hardware, the company plans to increase its monthly subscription fee for the first time in eight years. The price is rising to US$44 from US$39 per month in the U.S. and to US$55 from US$49 in Canada, but isn’t currently changing internationally. 

New Chief Executive Officer Barry McCarthy is betting he can lure more customers to Peloton’s platform, which has long been viewed as a luxury product, and then collect more revenue from a bigger customer base. The company had been a highflier during the pandemic, when stuck-at-home consumers snapped up its product, but demand slowed in the past year and its stock plummeted.

Peloton investors initially applauded the new pricing strategy, sending the shares up nearly 6 per cent, but the rally soon faded. The stock was down 0.6 per cent to US$24.89 as of 11:12 a.m. in New York. Peloton has lost more than three-quarters of its value over the past year.

McCarthy embarked on a turnaround plan after taking the job in February, part of a shake-up that included management departures and layoffs. Former CEO and co-founder John Foley became executive chairman as part of the changes.

The monthly subscription service, known as the All-Access Membership, allows Peloton hardware customers to attend the company’s full array of virtual workout classes. The company had 2.77 million subscribers as of its second quarter this year, along with gross margins of nearly 68 per cent.

Peloton’s hardware margins are much lower -- 6.4 per cent in the second quarter -- and the price cuts will squeeze them further.

“There’s a cost to creating exceptional content and an engaging platform, and this price increase will help us continue to deliver for our members,” Peloton said. “The price of hardware relative to the subscription is one of many levers by which we are looking to reduce barriers to entry.”

Peloton, which said the cuts will be effective at 6 p.m. New York time on Thursday, recently also lowered the price of its new Guide strength-training device for television sets by US$200. The subscription fee changes take effect June 1.

Under the new pricing plan, the regular Bike will still have a US$250 shipping fee. The Tread product has a US$350 shipping fee, but the Bike+ doesn’t have such a charge.

The shift comes the day after investor Blackwells Capital LLC reiterated a plea for the company to be put up for sale and criticized its performance under McCarthy. Peloton has lost an additional US$2 billion in market value since the overhaul in February and it’s time for bigger changes, Blackwells said.

The price cuts are the second major shift under McCarthy, who unveiled a test in March for users to rent Peloton bikes for a monthly fee that also includes the content subscription service.