Written by Brenda Nakalema

Peloton Plans to Kill ‘Golden Goose’ Price Point. Here’s The Effect on The Stock

Peloton Interactive (ticker: PTON) executives always considered the company’s $39 a month subscription price point as one of the company’s …

Peloton Interactive (ticker: PTON) executives always considered the company’s $39 a month subscription price point as one of the company’s most competitive advantages, using flowery terms such as: “sacred,” “sacrosanct,” and “our golden goose.” However, the sun seems to have set on their “golden goose” at this current time.

On Thursday, the maker of interactive bikes and treadmills announced that it was raising the price of its connected fitness membership for the first time. The subscription, which allows users to access digital classes and scenic rides on Peloton machines, will now cost $44 in the U.S, starting June. The strategy standouts amidst other efforts enforced by the company to turnaround performance and bring it back to profitability- Key amongst those moves was the recent hire of the company’s new CEO, Barry McCarthy, who replaced founder John Foley earlier in the year.

“Never say never, but I see it as our golden goose, and that $39 price point is sacrosanct to me,” said Foley. “You have to do delightful things and leave money on the table.”

Although Peloton declined to comment, the company noted that the increase would follow lower equipment prices in all markets. The company also went ahead to announce that it had added content, disciplines, music, instructors, and new features across its products. Even with these moves in the right direction, most executives at the company still strongly advocated for the current price point to be maintained.

Foley was quoted as saying that he picked the number himself because it cost $30 to $35 for only one boutique fitness class in New York City. “it is a sacrosanct price point,” Foley said. “The $39, we make over time, going to, call it, 70- plus percent margins in the coming years on that $39 a month. And so yes, we are giving you more and more goodness, more content, more software, more class types, more categories, and we’re excited about that.”

He was once again quoted, expressing the same sentiment at a Goldman Sachs event in September 2021.

“We’re willing to make the investments, and we’re totally committed to increasing the value of our $39,” Foley said at the time. “More software, better features, more content, better content and giving you the scale of more products all for the $39.”

Although Foley remains the company’s chairman, McCarthy remains in the driver’s seat as he tries to win back the heart of Wall Street. This comes amidst a call from the street for Peloton to sell itself. McCarthy is testing out new price points and offerings, including an equipment program called One Peloton Club, which offers equipment as a subscription option. The company also drastically cut the price of its new strength-training product, Peloton Guide.

With this strategy, it shouldn’t come as a surprise that McCarthy, a former Netflix (ticker: NFLX) and Spotify (ticker: SPOT) finance chief, wanted to unleash the full power of Peloton’s price point. BMO Capital Markets analyst, Simeon Siegel, commented that he believed the company has had enough leeway to raise its subscription price for years but felt the company was too ambitious in its efforts to grow its overall base and “democratize fitness.” The company’s shares have since dropped 80% in the past year after the firm erroneously overestimated demand for its bikes as lockdowns faded.

“The interesting dynamic of what happened yesterday is that the company lowered the price for new members while effectively raising the price for existing members,” Siegel said. “That doesn’t sit well with loyalists, with members. So at the end of the day, people that paid more for the bike believe they’re now subsidizing the cost of adding new people into the club.”

It is also a bit contradictory since McCarthy announced that the $39 price point for existing members wasn’t going away.

“Managements are clearly entitled to changing their opinions in the face of new facts, and raising the monthly price of the subscription may well be the right move,” Siegel added. “That said, backpedalling on recent comments that the $39 price would not go anywhere appears to echo prior communication missteps from the company and continues to appear as if management is testing strategies in real-time on their members on the fly.”