Last week, Peloton announced that its co-founder and CEO would be stepping down to become Executive Chair, while also announcing significant layoffs. This comes after an earlier article that discussed how the firm used the advice of McKinsey to restructure and cut high costs.
One factor I like to use when evaluating a companies moat is the NPS. With stars like Usain Bolt or Beyonce even competing to be associated with Peloton, dozens (probably hundreds) of people with Peloton tattoos, and a robust online community, I would make the argument that they've clearly built that moat around them utilizing community to build that protective moat around them. With that said, Peloton's NPS comes in very high amongst other top companies where consumers also have a connection to the product (or vibe the product provides). Do you think the NPS could be utilized for such measures, Professor Allon?
You could even go as far as saying that the core issue ("with every product, you exhaust the current market") mentioned at the end is imputable to that high NPS. With the high NPS, Peloton saw a scarily low churn rate (0.64% per month), which, especially over the pandemic, could've cause it to exhaust the market and community too quickly.
Well structured article. I have struggled with believing the business model all this time which "mirror" the arguments you raised. Unlike a luxury car or iPhone, which are publicly displayed brands, Peloton is hidden inside the house and lacks the customer pull. In addition, when is working out a generally acceptable recurring guilty pleasure.
I do think that Peloton has a competitive advantage through it’s scale that has driven down customer acquisition costs through word of mouth marketing. I also think that the scale gives them a bundled advantage on content which the other competitors can’t compete with i.e. the ability to offer bike, strength, yoga, meditation, Pilates, etc for $39.99 vs. a small competitor like Ergatta which also charges $39.99 for a few pre-recorded rowing classes. One note, they have never lowered the price of the bike subscription cost but have lowered the cost on the digital subscription that they say they just use as a feeder into the higher priced subscription — I do believe they have pricing power on the subscription side that they will use over time because the switching costs are high in my mind. iFIT attempted to go public in the fall of 2021 so you can see some of their metrics in the S-1. The monthly churn is much higher (I don’t think this is necessarily a moat but it is notable). Peloton had a lot of self-inflicted wounds: delayed treadmill launch multiple times, poor response to safety issues, building inventory at the wrong time, supply chain issues (mostly out of their control in my mind but I know you’ve written about this very extensively and are much more knowledgeable on the topic), etc. I am optimistic with better leadership (the new CEO has an impressive resume) they will be able to turn this business around. Enjoyed the article as always!
Wouldn’t their ever growing library of workout classes be somewhere between IP and a switching cost? Maybe not strong moat, but I believe there is some defensible aspect to their business model.