In its IPO paperwork, Peloton touted its low churn rate. But experts say several factors are making that number smaller than it would otherwise be.
Peloton thinks the churn figures are so important that it touts them on the second official page of"Usage drives value and loyalty, which is evidenced by our consistently low Average Net Monthly Connected Fitness Churn," it says in one section of the document."Our unit economic model benefits from low Average Net Monthly Connected Fitness Churn and high Subscription Contribution Margin," it continues in another section.
For example, the company allows customers to pause the subscription service for as long as three months. But it continues to count those customers as active subscribers even while their subscriptions are paused. Such customers may not have churned yet, but they aren't paying company any money either.
The company didn't disclose how many of its customers are still on those extended subscription plans. But it did say it will still have some customers on them into its 2022 fiscal year. Peloton includes those customers when calculating its churn rate. That's a bit misleading, because it means the churn figure includes people who haven't really had the opportunity to leave yet, Bedford said.
"There's a whole bunch of people who are coming to the end of the subscription period who may not renew," he said.Another factor that's likely helping Peloton minimize its churn rate is just the sheer number of new subscribers it has been adding. The number of people subscribing to its connected fitness service more than doubled in each of its last two fiscal years, going from 107,708 in June 2017 to 245,667 in June 2018 to more than 500,000 this past June.
What's more, new subscribers are often less likely to cancel a service, because they tend to be the most enthusiastic customers, Rochlin That's particularly true with Peloton, because it's new subscribers have just spent — or are in the process of spending — thousands of dollars on its equipment, he said.
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