Peloton’s push into gyms: CEO Peter Stern’s big bet

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0:36The opportunity emerged and that was too good. In Peloton, I saw not only a business where I felt like I could make a difference, but also one where we can empower people. Today's guest is Peloton CEO Peter Stern. For years, Peloton didn't just sell bikes. It built one of the world's most powerful fitness communities and became one of the hottest names in global business. The company was once hailed as one of the biggest winners of the pandemic era. But in recent years, as the world shifted back outside the home, Peloton was forced to confront a new reality. There's been some debate from investors if Peloton could turn around.

1:09Now, Peter is tasked with rewriting that story. The biggest misunderstanding about Peloton is it's just an in-home cycling company. And it turns out it's so much more than that. He's looking to evolve Peloton beyond the bike with new products and even new experiences, taking it from living rooms into gyms and beyond. The right thing for us to do is to invest in the gym just like we're investing in the home. In this conversation, we'll hear about Peter's first year at the helm, key choices he's made, and how the company is thinking about fitness with AI at its core. Let me talk about refounding Peloton IQ.

1:41Give us the ability to have a profound impact on the quality of people's days and quantity of the days that they live on this earth. That to me is a purpose for our company that befits the brand Peloton.

1:56Peter, thanks so much for joining us. Michelle, it's my pleasure. So just to start off, I would love to hear a little bit about your professional background. You, like many other type A people on this show, graduated from Harvard with a degree in English and music before going to Yale Law. Did I see correctly you were even in Harvard's Glee Club? I was. I was a huge nerd. But that's actually how I met my wife, because she was in the Radcliffe Choral Society and the Harvard Glee Club and Radcliffe Choral Society got together for parties occasionally. And so my nerdiness paid off. I see it paid off in one way, but I was so curious, you know, what were your aspirations early on and how did it inform your initial career path starting out?

2:39Early on, I spent my childhood as a pianist. and I had to make a big decision at around age 10, whether I was going to ramp up from practicing the piano about two hours a day to six hours a day, or whether I was going to have a more normal upbringing. And I realized that for me, being with other people and collaborating, whatever that was, right? At that time, it was mostly play, but that was really central for me. And so I made that decision at that age to be part of activities with other people. And I think that shaped my desire to be in the kinds of roles that I've been in ever since. I think a lot of people might be surprised to hear that you were a pianist growing up.

3:21And I did see you started your career at the management consulting firm McKinsey, obviously an icon, before going on to, we actually share a former employer, Time Warner Cable. What did your roles teach you? And what guiding principles did you kind of take from some of those experiences? Well, McKinsey was absolutely formative for me. there were two aspects of McKinsey that really defined that firm. One is this focus on client service. And to me, servant leadership is really something that I have therefore had drilled into me from my first days in the business world. The second was that the firm was equally as focused on developing great people as it was on that servant leadership.

4:06And of course, they needed to be because the product that McKinsey had to sell was the people. And so I've really focused on not just my own development, but the development as much as I can of everyone around me, even to the point where later in my career, I spent about four years running HR for Time Warner Cable. So that has always been a passion of mine as well. I'm curious as well, obviously, you've had quite a storied career. It would be really tough to go through all of the different experiences you've had, but just to skip forward a bit, you went over to Apple, where you managed a massive portfolio, including iCloud, Apple News, Apple TV +, and an offering you helped create, Apple Fitness+.

4:45What did you learn about the subscription business in this time? And how did you juggle it all, frankly? I will go back because the very first subscription business I ran was when I was 18 years old. And at that time, it was for a little magazine. When I was in college, we had 2 ,000 subscribers. And I had such a tactile subscription experience because I literally addressed the envelopes, like printed out the labels and stuck the labels on the envelopes for the renewals. And when people sent in, our subscription was$20 a year. When people sent in their money, we told them not to send cash, but it was often$20 bills stuck into the envelope.

5:22And I would bring those to the bank. I really understand subscriptions in a way that I think in the modern era, it feels a little bit, it's a little bit remote for people, but for me, it's very personal in that sense. When I was at Apple, the first thing I did when I joined was get involved with iCloud. I felt that that was such an essential part of the Apple experience, that sense of continuity that you would have from one device to the next, the ability for you to have the peace of mind to know that your precious memories and your files would be with you no matter what happened, even if you lost your device.

6:04That felt like something that we could use as a foundation for not only creating a different kind of relationship between Apple and its customers. Remember, Apple did not know who most of its customers were. The vast majority of iPhones are sold through a carrier. So this was a chance to build a direct relationship with a customer and then also to act as a foundation for building all of these other services that could enrich people's lives. And I would assume then that that obviously gave you really valuable insight into how you tried to forge that connection now directly in your role at Peloton.

6:40It seems like subscriptions are really in your blood. I'm so curious as well. One thing that I did see when I was reading up on you is that some media execs had described you as a company man. I'm just so curious because obviously you then left the tech world for Ford Motor Company, going into quite a different space, some would say, right? The auto world. What drove you to like kind of make that switch as well? And also, you know, what did you learn in particular about merging hardware and software over there that guide you in what you do now? Yeah, there's there are a lot of pieces to that. So let me first start by acknowledging the roast of company man.

7:16And here's why I think people referred to me that way. I only work for places that have tremendously strong values and iconic products and that give me a chance to produce things that I'm truly proud of. And so it's not that I would be a company man for any company, but I would for the ones that I choose to work for. So now let me answer the Ford part of the question. And how did that come about? So first of all, I loved my experience at Apple, but I have three relatively grown kids. They're all in their 20s. And it was clear that they were all going to be on the East Coast. And my wife and I decided that living 3 ,000 miles from them was not sort of the right answer for us in the long run.

8:07And so I left Apple with absolutely no sense of what I was going to do next. And then some folks from Ford called. It would be great. If you could do something like what you were doing with Apple. That idea of, I mentioned that at Apple, the company didn't really know who most of its customers were. Ford was not dissimilar. When you buy a new car, you buy it from a dealer. That dealer is not owned, at least if you're Ford. It's different from some other companies like Rivian or Tesla. But those dealerships are not owned by Ford. And so they don't actually know who the customer is. there's a real opportunity to build a different kind of relationship, one that allows you to communicate the benefits of your company, to deliver ongoing value through the mechanism of a subscription, but really through the products that we could create.

9:03And when I was given the opportunity to oversee things like building the autonomous driving business and building other things like connectivity and security packages and building a B2B suite of products, all of that just added up to a really, really unique opportunity. And we made amazing, amazing progress in that year and a half or so that I was part of the company. But then Peloton called, or actually I called Peloton, but the opportunity emerged and that was too good. Okay. Well, let's get into that because I did see that as well. You actually were the one I read that reached out to Peloton.

9:40So what is the story here, Peter? Because early last year, you then signed on board officially and started the job as CEO. It's no secret that obviously Peloton has had lots of highs and lows, as I just alluded to there. I think it's fair to say that when you were first named to the role, this was seen as a really tall order, right? I mean, other folks had tried and failed to kind of shore up the business shortly before you. There had been painful layoffs. And at the time of your appointment in late 2024, I think Peloton's share price had fallen more than 94 % since its peak in 2020. All of this is stuff that's been pointed out to you.

10:12So first off, what motivated you to take on this challenge? And what was the reaction from your friends and family? I believe so deeply in what Peloton does for its members today and can do for so many more people that this was absolutely a dream, a dream job for me. I knew that I wanted to spend as much time as I can at this stage in my life and in my career making a difference on matters that can bridge the gap between health span and lifespan, that can really enrich the quality of our years on Earth. And the best way to do that is to go upstream and start to address challenges around exercise and around sleep and around mental well-being as early as we can.

11:06And in Peloton, I saw not only a business where I felt like I could make a difference because it sits at the intersection of media and technology and community, things I'd worked on before. It was a subscription-based business, an iconic product, as we talked about earlier, but also one where we can empower people to live fit, strong, long, and happy. And that, to me, is something that gets me out of bed every single day, just so enthusiastic about my job. And I'm so lucky to have that. Looking back, it sounds like all the dots really connect, as they say. What was the initial moment that you realized, like, okay, let's go for it?

11:46Was it as simple as literally seeing that they needed someone else and calling them up? Or what was the story? Yeah. So actually, when I left Apple, I said, you know, I'm going to be in no rush. I'm going to be very deliberate about what I do next. And I tried to be pretty systematic about it. And I said, I want to do things where I can live on the East Coast, see my kids. That's why we left. But I want to be able to do something that I believe in. I want to be able to work in something that has subscriptions because I understand that well. It needs to be media technology. They need to be ready to entrust me with significant leadership.

12:26And there are certain businesses that are already done that I didn't want to do anymore. I'd done 12 years as a cable guy, and that was enough. And so by the time I put everything through that filter in the New York City metropolitan area, the only company that actually came out the other side of that filter was Peloton. but there was no job at that time because they had a CEO. And so that's why I went to Ford when they called. It wasn't in the New York City area, but it checked a lot of the other boxes. And again, that was a wonderful experience. And I'd like to think that it worked out well for Ford too.

13:02All the products we were working on are doing great.

13:07But when I heard that there was an opening at Peloton, I very quickly through a friend found out who the recruiter was, called him that day. He said, we haven't even really started. I said, well, I'm your guy. And especially because I had had that experience at Apple and really felt like this was a marriage made in heaven. In terms of friends and family, was there anyone telling you, what are you doing? You know, like, obviously, this is going to be a big ask for you or not. Yeah. I mean, there were certain people who might have said, wouldn't it be better to just jump on a rocket ship? Right.

13:45My experience is that I didn't want to jump on a rocket ship and just be the guy who described the scenery. I wanted to actually join a place where I could actually make a real difference, where my vision, coupled with that of the team, of course, and the strategy that we would put in place, would materially impact the outcome of a business that is really important in millions of people's lives. And so, you know, once I explain that, then everyone is completely supportive. Well, let's talk about that vision, because I've read that you've been a Peloton member since 2016, if I have it right. So 10 years, actually.

14:24When you first took the job, what did you think was misunderstood about the company? And what did you believe that you could fix that others couldn't? The biggest, I think, misunderstanding about Peloton is it's just an in-home cycling company. and it turns out it's so much more than that right this business of course is the world's largest in-home cycling company but we also have an amazing tread product line and that's a very successful product but even more important i think than either of those two is the broad array of disciplines that our members engage in with our instructors so for example in a typical quarter we'll have 2 million of our members doing strength workouts.

15:04That makes us the world's largest strength subscription service. And we know that there's so much changing in the world in our understanding of what's important to have a well-rounded health and fitness routine. We know now the importance of strength in addition to cardio. That's just the tip of the iceberg. Of course, we've got stretching, we've got yoga, Pilates is on fire, not just in the rest of the world, but our members are engaging in Pilates in absolutely record numbers. And that's something that we offer without at this stage having to actually have a piece of equipment or leave your home and go to an expensive studio.

15:43So, you know, there's just so much that we do for people. And that's just the tip of the iceberg compared with what we could do over time. This episode is brought to you by Long Angle. Now, here's something interesting about them. Think about the conversations we have on the show. What's next for the IPO market, building a$2 billion brand, AI and robotics, and even travel hacks. Long Angle is a community where people are having these exact conversations, except with their own money on the table. It's a private vetted network of entrepreneurs, executives, and investors, everyone with a verified net worth between$3 million and$100 million.

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17:19Absolutely. And I'll just zoom out a little bit from that. For us, the vision is that we go from being a connected fitness company, which is a wonderful thing to be, to being a connected wellness ecosystem. Because ultimately, that's how we make the most profound impact on our members' lives. I'd love to be used by more members more days of the week for 20, 30, 45, 60 minute bike rides or for treadmill runs and walks. But even better than that, from my perspective, would be to do those things and also be there for them in their outdoor runs and to be there for them with their meditations and to be there helping them get to sleep and deal with the stressors of the day to substitute for, you know, especially if they're a busy parent and it's hard to get out of the home, having to do something in studio like Pilates, all of these things are not future dreams.

18:17They're actually things that Peloton offers today that we need just more people to recognize, and we need to find more ways to activate them. Right. And is that why, actually, I think I did see a headline, didn't you guys acquire a breathwork app last year? That's a big part of the whole push into overall wellness, it sounds like. How do you then go about enacting some of these changes? I hear that it's a process that's been described as refounding the company, so to speak. And I'll start, by the way, with a moment of acknowledgement for the incredible founders of Peloton, because the fact that we refounded should take nothing away from the work that John Foley and team did to remarkably create a product market fit where there seemingly was none before, and to identify this idea of in-home connected fitness.

19:06that a whole industry exists because of what they did. But over time, I believe that the definition of the company had just become too narrow compared with the potential for our impact. And so the idea behind the refounding was to start at the very, well, foundations, similar word, and to redefine our purpose, empowering people to live fit, strong, long, and happy, to expand the scope of our impact to ultimately global impact on people, to focus on not just fitness, but also all the domains of wellness, cardio, strength, mental well-being, as you mentioned with the app we bought, sleep and recovery.

19:59Even over time, we're exploring areas in nutrition and hydration. All of those things, when you wrap them in an intelligent layer, what we call Peloton IQ, give us the ability to have a profound impact on the quality of people's days and ultimately the quality and quantity of the days that they live on this earth. That to me is a purpose for our company that befits the brand Peloton, that wonderful brand. And now we are working across every one of those dimensions to deliver breakthrough experiences individually and then to tie them together, again, with Peloton IQ so that our members have the guidance that they need and the personalized plans to complement what our human instructors do that deliver a plan that will make a difference in their lives.

20:55Well, OK, that segues really well to something I wanted to ask you about, because you can't sit down with a CEO today without talking about AI. You've been bullish on this, I think, Peter. I'm curious if you can share, you obviously talked about Peloton IQ, how Peloton is integrating AI into its lineup and your outlook more broadly going forward. What is the game plan here? And what do you say to critics that say we're in a bubble? There are lots of examples where AI is of dubious value or it may have mixed results in the world. But what we're doing at Peloton is definitely not one of those. For us, AI is an unalloyed good because we are using it as a way to take our 57 instructors.

21:37We have 57 instructors and we have 6 million members. So what does that mean, right? The ratio is 100 ,000 members to one instructor. Now, the beauty of our system is that our instructors can deliver group classes. In many cases, tens of thousands of people will tune in for the same class. But they're simply, even though our instructors are remarkable human beings, they cannot connect individually with 100 ,000 people each and develop a plan for each one of those people. and also then monitor your progress and your changing goals and adapt that program to you. But with Peloton IQ, which channels the capabilities of AI, we now have the ability to deliver the benefits of a group class, that community experience that so distinguishes Peloton, with a completely personalized experience.

22:33We then even have taken it further than that, and the work that the team has done is remarkable. On our plus line of equipment, we're able to use computer vision. And again, all of this has been built using machine learning and AI to analyze your form as you're, for example, doing strength training. And we can give you feedback on whether your form is good or what to correct. So things like straighten your back. I should probably do that right now. Or we can count your reps. We can even tell you when it's probably time to either go up in weights because it's too easy for you, or maybe you want to back off because we can see your form is breaking down.

23:18You want to go down in weights. These are all examples where we can basically bring some of the benefits of personal training right into your home using AI and augmenting the amazing human capabilities that we have as a company. So I'm incredibly bullish on AI. To your broader point of whether we're in an AI bubble, that's for other people to answer. But we're not in an AI bubble at Peloton. You know, those are some great use cases there. I'm so curious. You know, obviously, you've outlined a lot of different offerings that you're working on. Some investors have argued that Peloton should lean more heavily into the whole software and subscriptions rather than, you know, focusing on hardware, which can be a bigger drag on margins.

23:56How do you think about that balance? So one of the aspects of the refounding that I did was to get us focused again on what makes us truly unique. And that is what I call our magic formula. The magic formula at Peloton is world-class equipment plus intuitive software powered by AI. It's unmatched human instruction. And it's that supportive community that ties it all together. We have to go back to what drives a habit. Because in the world of exercise, fitness, wellness, habits are everything. It's not getting started. It's staying with it that matters. And for something to become a habit, it needs to be obvious, attractive, easy, and satisfying.

24:53Having a physical piece of equipment in your life that's like what we produce at Peloton checks a bunch of those boxes like obvious and attractive and easy. And then, of course, we make it so it's really satisfying. If you just have an app, it's somewhere on screen three on your phone or that's not obvious. And so we are distinguished from all of our competitors and that plays out in the metrics of the business. When you look at the typical churn rate, right? So the inverse of how long someone stays with the business for an app-based fitness business, it's typically six to 8 % a month. Multiply that by 12 months, you're getting very close to turning over your entire base every year.

25:43Look at our business. We have somewhere closer to, on a net churn basis, 1.5%. So our average member is staying with us for five and a half years. That's a fundamentally different business. And it's one in which we can, because the member is choosing to invest in us, we can afford to invest in them. We can put together a much higher quality experience. We can afford 157 world-class instructors who are stars, each and every one of them in their own right, because we have that equipment that drives the habit, that drives the longevity, that drives the value for the member and for us. Some news you made recently as well, Peter, is that Peloton is heading to the gym.

26:21Talk us through the decision to push into the commercial business and the reception you've seen so far. So I'll start with the reception, which is gym operators are so excited about what we're doing there. and that I think validates what we believe. If you divide people into how they work out, they're in three categories. There are people who work out at home, and there are people that work out in gyms, and there are people who do a little bit of both. And if we only focus as a company on the people that are at home, then we're missing out on having a really big impact on the people who only work out in gyms, and we're only meeting part of the needs of our own members who in many cases are splitting their time between a workout at home and in the gym.

27:10And so once we recognize that gym versus home is not a zero-sum game, this is a situation where all of us are just focused on helping more people get fit, live better lives, think of themselves as athletes, then it becomes obvious that the right thing for us to do is to invest in the gym just like we're investing in the home. Now, building products for the gym is really different from building products for the home. They might look very similar, a treadmill in the home or a treadmill in the gym or a bike in the home versus a bike in the gym. But take the example of a bike at home. Maybe you've got two people in the family who share that bike.