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Peloton CFO Jill Woodworth joins Yahoo Finance Live to break down the company's 4th quarter earnings report, the Tread recall, and cutting the price of its bike by 20%.
BRIAN SOZZI: Peloton shares are under pressure following the company's latest earnings and outlook. The company saw some slowing in subscriber growth, cut the price of its entry level bike by $400, and said it wouldn't be profitable on an adjusted operating profit basis for its new fiscal year. Peloton also disclosed it uncovered a material weakness in its accounting for inventory valuation.
Let's unpack all this with Peloton CFO Jill Woodworth. Jill, always good to speak with you. Thanks for taking some time this morning here. Let's start with the decision to cut the price on the bike. Why does that move makes sense? And is it a reflection of just a more heightened competitive environment for at-home fitness equipment?
JILL WOODWORTH: Great question. If you look back over the last several years, we have always had the aim of making our products more accessible. We introduced zero APR financing four years ago. We introduced a 30-day free home trial a couple of years back. And we've also cut the price of our digital app as well.
And so it's been largely academic until now to be able to make a big price move. As you can imagine over the last several years, we've essentially sold every bike that we could make. And over the last couple of months, of course, the pandemic forced us to really grow our manufacturing base eight or nine times over during the pandemic. And so we're finally in a place, from an inventory perspective, where we can actually enact a dramatic price change to really open up the accessibility of our products. So we're really excited about it.
JULIE HYMAN: Jill, it's Julie here. Just to follow up on the pricing a little bit, it seems like it really took the street off-guard. Was there a matter of maybe you guys could have done a little bit better job preparing people for this price cut? And if you could, give me a little bit more color around how you were able to cut the price. I mean, we talk to CEOs every day who are rising input costs and then are raising costs. So I think it's notable in this bigger environment to see someone cut the price and cut it by so much for a flagship product.
JILL WOODWORTH: Well, I think it underscores, frankly, a lot of consistent themes that we've communicated over the last several years. And first and foremost being the fact that we are prioritizing subscription growth and household penetration. And so with this price move, we think this is a great way to expand our addressable market and get more people into the Peloton ecosystem.
And again, it's been something we've consistently said that, as we move forward and we have taken a lot of costs out, especially of our original bike, where we have our most mature supply chain, we've taken these costs out. And so we've always said that when we are able to, we will make our products more affordable. So I don't necessarily think there's anything surprising about the move.
MYLES UDLAND: Jill, it's Myles here. I wanted to ask a little bit about the costs associated with the Tread recall. You guys have the line item in there. And I guess how you think about that risk across the portfolio now going forward as something that could come up from time to time, given these are sophisticated pieces of equipment that you're seeing millions of go out the door.
JILL WOODWORTH: So we're excited about the launch of our lower-price Tread. As you know, in collaboration with the CPSC in the US, we now have the approved repair for the touchscreen for that lower-price Tread.
And for us, as you know, safety is paramount for us and for our members. And so we also rolled out Tread Lock, which is a passcode that is now required to turn the Tread on. And we believe, with these remedies, we have the safest treadmill on the market. And the treadmills will go on sale next week. But for us, again, it's just all about safety for our members. And we feel really good about our remedy. And of course, we will always be looking for ways to enhance the safety of our products.
BRIAN SOZZI: Jill, just given the Tread recall, will you have to cut the price on the treadmill as well?
JILL WOODWORTH: At this juncture, we have no plans to change the pricing of either our higher-end bike, our Bike+ or our Tread. But certainly over time, especially when we're able to move our manufacturing base more domestically with the Peloton Output Park that we announced a couple of months back-- we are very excited about the cost efficiencies that we will see on that lower-price Tread over time.
BRIAN SOZZI: And Jill, on the accounting issue that was mentioned up in the release, now, why do you think this happened? And will you have to restate any financials because of it?
JILL WOODWORTH: Yeah, so first of all, we are not restating financials. We had some manual errors in documentation. And the discrepancy was not at all material. And as you can imagine, we're already investing in remediation efforts here. So this again, is not impacting our financial statements and will not result in any restatement of our historical results.
JULIE HYMAN: Jill, I want to ask you about subscribers as separate from the hardware for a moment. You guys ended last quarter with 2.33 million connected fitness subscribers, total members 5.9 million, which I assume also means other people who used those subs in those households, and then 874,000 digital-only subs is my understanding. Hopefully I have all these numbers right.
Of those digital subs, I know you guys have been offering some complimentary subscriptions. How many of those are paying? I know these are higher-margin-- the subscriptions are higher-margin than the hardware. So talk me through those numbers and how you think about them.
JILL WOODWORTH: Yeah, so we love the digital subscription business, largely because a lot of those digital members end up buying a bike and hopefully will end up buying a Tread and converting into connected fitness. It's actually our fastest growing sales channel. And so we do have efforts to continue to grow our digital app business.
This is also going to be an integral part of our corporate wellness program where a lot of corporations are very interested in subsidizing access to our digital membership. So this will be a key lever for us to use as we drive our corporate wellness business.
BRIAN SOZZI: All right, let's leave it there. Peloton CFO Jill Woodworth, good to see you this morning. We appreciate you coming on and talking about this stuff.