Peloton CEO John Foley on bikes, revenue and recessions - Axios
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Peloton CEO John Foley on bikes, revenue and recessions

John Foley is a veteran technology executive and entrepreneur, having previously held senior positions at companies like Citysearch, Evite and Barnes & Noble (where he led e-commerce). Now he runs Peloton, a so-called Netflix for bikes that effectively offers professional spin classes in a user's home. If that sounds familiar, it may be because you saw the company's store in your local shopping mall, or one of its recent spate of television commercials.

The New York-based company also reportedly is raising up to $120 million in new VC funding at around a $1.2 billion valuation. Axios spoke with Foley via phone about Peloton, its finances, its competition and its future. The quick read:

  • Peloton is best known for hardware, but it's more a software and media company.
  • The company generated $170 million in revenue last year.
  • Last month it streamed one million rides. Monthly subscriber churn is just 0.3%.
  • Peloton discussed bringing rivals Soul Cycle and Flywheel onto its platform.
  • It pays its instructors 3-4 times the market rate, plus bonuses.

Is Peloton a hardware or software company?

For sure we're a software company. The entire leadership team comes from consumer Internet… We decided to get into hardware because we didn't think there was any existing hardware that was good enough. So we went out and decided to make a bike and make a big tablet for it. But what differentiates us is the software, which includes the streaming and the gamification and the network. We're also a media company on top of that, because we're streaming 12 hours of live TV content each day and have another 4,000 classes on-demand. It's kind of like how Apple was before all the services went to the cloud and the handsets basically become dumb terminals, plus CPUs and smart-chips.

Will you also have to open up your walled garden for third-party content?

We've played with it, and even talked to Soul Cycle and Flywheel, asking if they wanted to have a channel. We were open to the idea, but they were not. A couple of years ago we also leaked out on Reddit how to unlock the device and download Netflix, but there haven't been a lot of people asking for it. Overall, I do assume that content in this area is going to massively heat up in the next year or two, including among all the traditional stationary bike manufacturers who have realized that people don't want to stare at a wall and motivate themselves. That's why we're capitalizing to be very aggressive.

Speaking of capitalization, will you comment on the Bloomberg fundraising report?

I'm not going to discuss that, but we tripled the size of the company last year and plan to do so again this year.

Tripled in terms of what?

We went from 20,000 bikes to 60,000 bikes and $50 million in revenue to around $170 million. We also have 99.7% monthly retention on our subscriptions... We're also doing more and more of our own logistics. We currently have three Peloton/Mercedes Sprinter vans in three cities and rolling out another seven this year. That means people will get bikes delivered by our people, who will set them up, put cleats on their shoes, hook up the WiFi and even answer questions about different instructors. It's UPS meets Apple's Genius Bar. We currently have a 93 net promoter score and, I know it sounds crazy, but I want us to get to 100.

Peloton has lived its entire life in an economic recovery. How do you sell more $2,000 bikes and $39 monthly subscriptions if things turn south?

First we're going to take some sticker shock off the table by launching a three-year financing plan on the bike. We're also going to market how Peloton is an investment that scales inside your household. A couple can both pay for Soul Cycle classes or monthly gym memberships, or they can share a bike and pay $39 per month for unlimited classes. We think it's actually the perfect product for a recession, because it's cheaper in the long-term than the alternative.

Another alternative would be riding outside. Are most of your sales in cold weather states.

That's what I originally thought would happen, but Dallas is actually our best store right now. When Soul Cycle filed its S-1, they came under some criticism because 97% of their revenue was in three markets. For us, only 27% of our bike sales are to New York City and California. It really speaks to how much demand there is across the nation.

If you're a media company, in part, then your instructors are the talent. How do you recruit and compensate them?

We streamed one million rides in the last 30 days. If you're a spin instructor reaching 50 people in a sweaty basement, you want a chance to reach that kind of audience. We also pay three to four times more than market rate, plus a performance bonus where the top ones get a little bit more. We also care a lot about our culture, so retention hasn't been a problem. In five years from now, if other platforms like ours emerge, we'll have to continue to maintain that culture and make it even more attractive. One big way to do that is continue to improve the software, which makes the experience better for both users and instructors.

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Big business to Trump: Don't gut the State Department

Jacquelyn Martin / AP

Ahead of the White House's budget proposal this week, which is rumored to cut 31% from the budgets of State Department and USAID, hundreds of top business leaders have sent Secretary of State Rex Tillerson a letter urging him to fight for funding for State, per the WSJ.

A key quote: "With 95 percent of the world's consumers outside the United States and many of the fastest growing economies in the developing world, now is the time to double down on America's global economic leadership."

A taste of the signatories: Top executives from Walmart, Pfizer, Coca-Cola, GE, Nike, UPS, and Marriott.

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House and Trump administration to delay insurer subsidy case

(Atef Safadi / EPA Pool via AP)

The House and the Trump administration will seek an additional 90 days to resolve a pending court case over the legality of Affordable Care Act insurer subsidies, the Washington Examiner and CNBC report.

While the subsidies may continue to flow to plans operating on exchanges, the failure to reach a decision doesn't give insurers the certainty they're looking for. Plans must decide whether to participate in federal exchanges by June 21. If they don't get a guarantee that they'll keep receiving the subsidies, plans will likely drastically raise premiums or pull out of exchanges.

The Examiner reports the House and the White House are working on a plan to ensure the subsidies continue going to insurers, who pass them on to low-income enrollees.

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Supreme Court strikes down North Carolina redistricting

Jon Elswick / AP

The Supreme Court ruled Monday that North Carolina Republicans placed too many African-Americans in two congressional voting districts it re-mapped after the 2010 Census, according to the Associated Press.

Why it matters: The 5-3 ruling upholds a federal district court decision that argued North Carolina lawmakers packed more African American residents into the districts than was necessary, which was challenged by the state. But even with the new lines, Republicans continue to hold 10 of the state's 13 districts.

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Pittsburgh sours on Uber's driverless car experiment

Gene J. Puskar / AP

Nine months after Uber rolled out its self-driving car trials in Pittsburgh, the relationship is deteriorating, the New York Times reports.

Why it matters: Self-driving car companies are forming partnerships with cities that will allow them to test their vehicles on their streets. It's a high-risk, high-reward proposition for city leaders.

Pittsburgh Mayor Bill Peduto told The Washington Post this fall, "Is there going to be an accident in a robot car? Yes there is. But the greater goal is to make our streets safer in the long term. We have to start at some point and we can't wait for regulation to catch up with innovation."

The city's complaints: Uber began charging for rides that were expected to be free; it withdrew support from Pittsburgh's application for a major federal grant to overhaul transportation; and it hasn't hired local workers as it promised.

Uber's response: "Uber is proud to have put Pittsburgh on the self-driving map, an effort that included creating hundreds of tech jobs and investing hundreds of millions of dollars," Uber told the Times in a statement. "We hope to continue to have a positive presence in Pittsburgh by supporting the local economy and community."

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Another U.S. chemicals giant strikes global merger

Huntsman Corp. of Texas and Switzerland's Clariant have agreed to an all-stock merger that would create a specialty chemicals giant valued at around $20 billion (including debt). Clariant shareholders would hold around a 52% stake in the combined company, which is expected to generate $13.2 billion in annual sales and $2.3 billion of EBITDA.

Why it's a big deal: This tie-up is part of a trend of cross-border consolidation in the mega-chemicals space, following the pending deal between Praxair (Connecticut) and Linde (Germany) and PPG Industries (Pittsburgh) attempting to purchase Dutch rival Akzo Nobel. It's also notable for private equity buffs (yes, such people exist), as Huntsman was at the center of what arguably was the most contentious M&A failure failure of the financial crisis era.

Fun fact: "Huntsman... is best known for inventing the clam-shell styrofoam box for McDonald's Big Mac burgers." ― Reuters

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Saul Loeb / Pool Photo via AP

The Associated Press is reporting that Michael Flynn, the former general fired from his National Security Advisor role by President Trump for lying about his contacts with Russians, will decline a subpoena from the Senate Intelligence Committee.

  • The sourcing: "[A] person with direct knowledge of the matter... spoke on condition of anonymity to discuss the private interactions between Flynn and the committee."
  • Why this was coming: "Legal experts have said Flynn was unlikely to turn over the personal documents without immunity because he would be waiving some of his constitutional protections by doing so. Flynn has previously sought immunity from "unfair prosecution" to cooperate with the committee."

Background on the subpoena, here.

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First-class travel, hotel suites: WHO spending under scrutiny

Raphael Satter / AP

The World Health Organization nearly spent more on travel for its 7,000 staffers in 2016 — $201 million — than its combined programs for AIDS, hepatitis, malaria, tuberculosis, mental health, and substance abuse, which total $213.5 million, per the AP.

  • How it happened: Lax rules surrounding first-class travel and hotel bookings allowed WHO employees to ignore official travel policy. For example, the agency's Ebola head spent nearly $400,000 in West Africa during the crisis, often opting for helicopter travel.
  • Comparisons: Doctors Without Borders spent $43 million on travel for its 37,000 aid workers; UNICEF spent $140 million for its 13,000 staffers.
  • Worth noting: The agency's polio expenditures hit $450 million last year.
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His learned insight: Zuckerberg said he sees an opportunity for Facebook to connect users beyond people they already know, and is hoping to soon introduce a system that recommends "people you should know," like mentors and people outside of your social circle who can provide "a source of support and inspiration."

Read next: Inside Zuck's real political strategy

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Ford replaces CEO Mark Fields with autonomous driving exec

Carlos Osorio / AP

Ford will announce Monday morning that it is replacing CEO Mark Fields with Jim Hackett, who ran Steelcase furniture for 20 years before joining the car company, reports The New York Times. Hackett most recently headed Ford's autonomous vehicle subsidy, known as Ford Smart Mobility.

Under Fields, who served as CEO for three years, Ford shares dropped 40 percent. He also was criticized by investors and the board for failing to make Ford a competitive player in the development of high-tech vehicles for the future.

Between the lines: The shake-up shows that Ford is shifting its focus to accelerate its self-driving technology. As the NYT points out, Ford has lagged behind other large automakers like General Motors and tech companies like Google, both of which have already begun testing their own autonomous vehicles. Ford is promising it will have a fully operating driverless car on the road by 2021.

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Striking AT&T workers head back to bargaining table

CWA

Over the weekend, AT&T stores were closed in a number of cities — from San Francisco to Boston to D.C. — when 40,000 workers walked off the job on Friday after the company failed to reach an agreement with the Communications Workers of America union. (AT&T told Fortune the majority of stores stayed open.)

In Oregon, Sen. Jeff. Merkley joined the picket line with workers. In New York City, Mayor Bill DeBlasio signaled support on Twitter.

Why it matters: It's the first labor strike AT&T has faced since 2012. AT&T is the largest U.S. telecom company, and the only one with a major union presence in its wireless business — the fastest growing part of the company. As a result, AT&T is having to contend with the pressures of competing with nonunion rivals in the increasingly competitive wireless sector, a company spokesman told the NYT.

At issue: CWA says AT&T has cut 12,000 U.S. call center jobs while moving jobs overseas, and has shifted jobs from company-owned retail stories to third-party reseller chains. Workers are also frustrated about rising healthcare costs and changes to commission rates. AT&T, for its part, says it's offering fair wage and pension increases and healthcare benefits. "Our employees are returning to work, and we remain committed to reaching fair agreements in these contracts," a spokesperson said.

What's next: In an email to members Sunday evening, CWA rep Dennis Trainor said the union will be back at the bargaining table Monday: "We stood up not only for ourselves and for our families, but for all working Americans who are sick and tired of being taken advantage of by greedy corporations. This fight is even bigger than AT&T. Let's congratulate ourselves for a job well done and walk into work tomorrow very proud."

Updated to include AT&T statement.