Peloton's new CEO has a chance to turn things around. Here's what he needs to do.

• Peloton announced that Ford executive Peter Stern will join the company as its new CEO.
• The fitness company is betting Stern can help turn things around.
• He's expected to focus on trimming spending and retaining current Peloton subscribers.

Peloton is betting that its new CEO can deliver a much-needed turnaround.

On Thursday, Peloton announced Ford executive Peter Stern would be joining as its new chief executive in January — the latest in a series of shake-ups for a company that has been struggling after riding a pandemic-era high. After the announcement, the company's stock surged nearly 28% on the day to end at $8.50 a share.

Stabilizing Peloton will be a tall order, requiring the company to trim spending and, most importantly, retain its current subscribers, analysts told Business Insider.

Even after Thursday's surge, Peloton's share price has fallen more than 94% since its peak in 2020, when stay-at-home orders kept people out of gyms and fitness classes. They flocked to the at-home stationary bike brand, which quickly gained a cult following.

But by 2021, supply chain woes had hit the company. Recalls of both bikes and treads damaged its reputation, and as the world opened up again, the novelty of sweating it out at home alone began to wear off.

"It was a bubble of euphoria in pandemic-induced perception mania," said BMO Capital Markets analyst Simeon Siegel, a longtime Peloton bear who has more recently changed his tune on the company given its focus on profitability. "Peloton's peak market cap was not steeped in reality; it was steeped in hope."

First order of business

Stern's first order of business will be a basic one: "Get the company into a stable financial state," Neil Saunders, the managing director at GlobalData Retail, told BI over email.

The company said Thursday that it wants to make changes to become sustainably profitable.

Retaining subscribers — rather than focusing on growing the base — will be key. The monthly fees that users pay for classes — whether or not they are owners of Peloton's equipment — are the high-margin part of the business, Saunders said.

Siegel told BI that his advice for Peloton would be to "bear-hug your brand loyalists. Make sure that people don't churn, because they're incredibly valuable." He said existing subscribers alone drive more than $1 billion in gross profit for the company each year.

One of his suggestions involves raising subscription prices for new customers, which would not only increase revenue per member but also be a "nod of appreciation" to the loyal existing subscribers and potentially keep them from canceling. The company currently charges $44 a month plus tax for its all-access membership, $12.99 a month for its App One membership, and $24 a month for its App+ membership.

Scott Markman, the founder of MonogramGroup, a global branding agency, said that a focus on the Peloton community will be pivotal.

Cutting costs

The company will also have to trim spending.

"Unlike most turnarounds, the healthy cash flow is already there, we simply suggest Peloton stop spending it," Siegel wrote in a note in May.

The company has been on a cost-cutting spree, reducing head count, spending less on marketing, closing expensive retail showrooms, and lowering research and development costs.

Peloton announced in May 2024 that CEO Barry McCarthy would be stepping down. McCarthy's departure came as the fitness company announced it was cutting around 15% of its workforce.

Stern's background in Apple's subscription services may help. He spent six years at the tech giant, leading businesses like Apple TV+, News+, and Fitness+. Stern helped lead the Apple Fitness+ vertical to millions of members, the company said in a Thursday press release.

Any turnaround may not mean a return to those 2020-level highs. Siegel says not to expect the company's market cap to go back to its peak.

"Peloton is an objectively, wildly successful entrepreneurial startup story," he said. "The problem was it didn't go from zero to today. It went from zero to Mount Everest down to today. Just as people got overly exuberant when Peloton was going up, they got wildly negative when Peloton went down."