Peloton will charge customers a one-time “Used Equipment Activation Fee” of $95 for purchases made outside of Peloton or its official resellers.
The fee will be charged in the U.S. and Canada. As The Verge pointed out, Peloton confirmed today in its fourth-quarter 2024 earnings call that people who purchase a used bike directly from Peloton or one of its third-party sellers will not be affected by the fee.
During the conference call, Peloton interim CEO Christopher Bruzzo said the activation fee will be “a source of additional revenue and gross profit” and will support Peloton's “investment in improving the fitness experience for our members.”
Peloton also claimed in a letter to shareholders [PDF] that the fee is intended to ensure that the subscription customers Peloton acquires through the sale of used bikes “receive the same high-quality onboarding experience.”
Used bikes are already helping Peloton make money
Peloton doesn't make money immediately when someone sells their unwanted bike to someone else at a discounted price, but it makes a lot of money from people who buy subscriptions for their used equipment. In its fourth-quarter 2024 shareholder letter, Peloton said used bike sales “bring a steady flow of paid connected fitness subscribers, up 16 percent year over year” in Peloton's fiscal fourth quarter.
People who buy used bikes outside of Peloton also have “lower net churn rates” than people who pay Peloton to rent its hardware, the letter said.
But Peloton's hardware sales have plummeted since booming during the COVID-19 pandemic — and so has its value. The new activation fee is typical of a company desperate for more revenue after its valuation soared from $50 billion in January 2021 to $2.1 billion in December 2023.
Peloton's fourth-quarter 2024 earnings report today showed hardware sales declined 4 percent year-over-year. Subscription revenue increased 2.3 percent (YoY). Overall, Peloton delivered its first revenue growth (0.2 percent YoY) since the fiscal quarter ended December 21, 2021. The company still reported a loss of $30.5 million; however, that's an improvement from last year, when it lost $241.8 million.
Fee could hinder the sale of used equipment
Peloton still needs to make big moves to make a profit, but the $95 fee could be seen as a deterrent to the used market and unnecessary to the user experience.
Peloton gear is already known for being expensive (the Bike+, for example, costs $2,500 at the time of this writing). The used market makes Peloton's products more affordable and allows people to recoup some of their losses on unwanted gear while also avoiding connected fitness equipment becoming e-waste. A $95 fee takes away some of the savings people have enjoyed for years by opting for a used Peloton.
This fee is also different from most other fees in the used car market (imagine having to pay Toyota a “reactivation fee” to drive a used car you bought, or Lenovo a separate fee to use the refurbished laptop you just bought).
As nermal543 put it on Reddit:
This is complete nonsense. Why would you want to stop people from buying used devices and getting an active subscriber back for $50/month? Because whoever is selling probably doesn't want to pay the subscription fee anymore. Yuck.
Peloton continues to face challenges rebounding after a meteoric rise and fall related to the pandemic. The company is also taking cost-cutting measures, such as reducing marketing and sales expenses, CNBC noted. And in May, Peloton announced the layoffs of about 400 employees (about 15 percent of its workforce), as well as the resignation of its second CEO in two years. Peloton has gone through several rounds of layoffs recently, with hundreds of job cuts also occurring in February 2023, October 2022, August 2022, July 2022, and in February 2022, when it announced the layoff of 2,800 employees. After employing 8,600 people in 2021, Peloton now employs about 3,000.
Some may be concerned about Peloton's efforts to make money, but investors seem pleased, with CNBC noting that shares are up over 30 percent in afternoon trading.
This isn't the first time we've heard of a company whose sales flourished during the pandemic now looking for new and controversial ways to keep the cash flowing. Last month, CEO Hanneke Faber talked about Logitech's idea of a “forever mouse” that requires a subscription for software updates.