Peloton Layoffs Point to Economic Pressures on Connected Fitness Marketplace

Peloton made headlines on Thursday (May 2) as it announced the launch of restructuring efforts, including laying off approximately 400 employees — about 15% of its global workforce — and reducing its retail showroom footprint to mitigate costs.

This announcement, coinciding with its Q3 fiscal year earnings report, is part of the company’s broader strategy to slash annual run-rate expenses by over $200 million by the end of fiscal year 2025.

“The objective of the cost reductions is to reshape Peloton to align our cost structure with the current size of our business and position Peloton to generate sustained and meaningful positive free cash flow, which is a top priority for us,” CFO Liz Coddington said on a Thursday call with analysts and investors.

This move comes amid a leadership transition, with Barry McCarthy stepping down from his role as CEO, president and board director. Chairperson Karen Boone and Director Chris Bruzzo will serve as interim co-CEOs as the search for a new CEO begins.

Bruzzo told investors the restructuring will “make Peloton stronger,” affirming continued investment in key areas like software, hardware and content innovation “to drive growth and engage more people who want to improve their fitness and wellness.”

Despite the challenging outlook, Peloton achieved a significant quarter milestone, becoming free cash flow positive and notching over 3 million paid connected fitness subscriptions, a net increase of 52,000. While the company saw a dip in paid app subscriptions — a 44,000 drop to 674,000 — subscription revenue increased 2.4% driven by continued growth in its premium app Plus subscription.

Furthermore, despite a downward revision in paid connected fitness subscription outlook for Q4, Peloton remains optimistic about the industry’s trajectory, emphasizing a return to stable growth and ongoing investment in innovation.

In fact, the company said it is actively working on app enhancements to improve the subscriber acquisition funnel, enhancing conversion rates from app download to trial and from trial to conversion. “[…] The app is an important part of our connected fitness subscription offering [and] on average, we see the majority of our connected fitness subscribers also use our app on a monthly basis,” Boone said.

Overall, management said the connected fitness marketplace holds immense promise, having experienced substantial growth leading up to the pandemic and an unprecedented surge in demand during the pandemic, particularly for in-home fitness experiences.

While this trend slowed post-COVID, presenting challenges for home-based fitness products and experiences, management remains optimistic about the sector’s future. They foresee it reaching an inflection point and rebounding to stable growth, offering opportunities for greater personalization in member experiences through offerings like virtual coaching.

Moreover, with remote work continuing for many employees, the appeal of at-home fitness remains robust, positioning the company favorably to attract more users moving forward.

“Through all the changes over the last several years our mission has remained constant — to connect the world through fitness, empowering people to be the best version of themselves, anywhere, anytime. It has been and continues to be important and meaningful work,” Boone said.