Peloton Announces $95 “Used Equipment Activation Fee”

Peloton will begin charging a one-time “Used Equipment Activation Fee” of $95 for used bikes purchased outside of Peloton and its official distribution partners.

The fee will apply in the United States and Canada. As The Verge noted, Peloton confirmed today during its Q4 FY2024 earnings call that people who purchase a used bike directly from Peloton or one of its third-party partners will not be subject to the fee.

On the call, Peloton interim CEO Christopher Bruzzo said the activation fee “will be a source of incremental revenue and gross profit” and will support Peloton’s “investments in improving the fitness experience for our members.”

Peloton also said in a letter to shareholders (PDF) that the fee is intended to ensure that the subscribed customers Peloton gains from selling used bikes “receive the same high-quality onboarding experience.”

Used bikes are already helping Peloton make money

Peloton doesn’t immediately make money when someone sells their unwanted bike to someone else at a discount, but it does make a lot of money from people who buy memberships to use with their used gear. In its Q4 2024 shareholder letter, Peloton said that used bike sales are driving “a steady stream of paid connected fitness subscriber additions, up 16%” year over year in Peloton’s fiscal fourth quarter.

People who buy used bikes outside of Peloton “also have lower net churn rates” than those who pay Peloton to rent its equipment, the letter said.

But Peloton’s hardware sales have plummeted, as has its value, since their boom during the COVID-19 pandemic. The new activation fees are typical of a company desperate to boost revenue after falling from a valuation of $50 billion in January 2021 to $2.1 billion in December 2023.

Peloton’s Q4 2024 earnings report released today showed that hardware sales declined 4% year-over-year (YoY). Subscription revenue increased 2.3% (YoY). Overall, Peloton achieved its first revenue growth (0.2% YoY) since its fiscal quarter ended December 21, 2021. The company still reported a loss of $30.5 million; though that was an improvement from a year ago, when it lost $241.8 million.

Fees could discourage sales of used equipment

Peloton will have to continue to work hard to turn a profit. However, the $95 fee could be seen as a drag on the second-hand market and unnecessary for the user experience.

Peloton gear is already notoriously expensive (its Bike+, for example, costs $2,500 at the time of writing). The secondhand market makes Peloton products more accessible and allows people to recoup some of their losses from unwanted gear while keeping connected gym equipment from becoming e-waste. A $95 fee takes away some of the savings people have enjoyed for years by opting for a used Peloton.

These fees are also very high compared to most used markets (imagine paying Toyota a “reactivation fee” to drive a used car you bought, or having to pay Lenovo a separate fee to use the refurbished laptop you just bought).

As nermal543 said on Reddit:

This is completely ridiculous. Why would you discourage people from buying used equipment and getting an active subscriber for $50 a month? Because presumably the person selling it doesn’t want to pay the subscription fees anymore. Wow.

Peloton continues to face challenges in rebounding from a meteoric rise and fall related to the pandemic. The company is also employing cost-cutting measures, such as cutting marketing and sales expenses, CNBC noted. And in May, Peloton announced the layoffs of about 400 workers (about 15% of the workforce), as well as the departure of its second CEO in two years. Peloton has experienced several rounds of layoffs in recent times, with job cuts in the hundreds also occurring in February 2023, October 2022, August 2022, July 2022, and in February 2022, when it announced the layoffs of 2,800 people. After employing 8,600 workers in 2021, Peloton now employs about 3,000.

Some might be disturbed by Peloton’s efforts to make money. However, investors seem pleased, as CNBC noted, with shares up more than 30% in afternoon trading.

This isn’t the first time we’ve heard about a company whose sales have exploded during the pandemic looking for innovative and controversial ways to keep the money flowing. Last month, CEO Hanneke Faber talked about Logitech’s idea of ​​creating an “eternal mouse” that requires a subscription for software updates.