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

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.


New Trumpcare amendment would require states to define essential health benefits

(Alex Brandon / AP)

A final amendment to the American Health Care Act was introduced Thursday night by the authors of the legislation, a last-minute attempt to win conservatives over by requiring states to define what services insurers must offer enrollees.

Here's what's in the amendment, which will be voted on in the Rules Committee tomorrow before the bill heads to the House floor for a final vote:

  • Beginning in 2018, states will determine essential health benefits. There are currently 10 federal ones under Obamacare, which apply to the individual and small group markets.
  • The repeal of the Medicare payroll tax on high earners would be delayed until 2023.
  • The original bill's Patient and State Stability Fund would get an extra $15 billion to be used for maternity coverage and newborn care, as well as mental health and substance abuse disorder treatment.

Apple says flaws in latest WikiLeaks disclosure are all old

Mike Deerkoski / Flickr cc

Although much was made about a new batch of iPhone and MacBook flaws disclosed by WikiLeaks on Thursday, Apple says the issues appear to all be old, since-fixed vulnerabilities.

"We have preliminarily assessed the Wikileaks disclosures from this morning," Apple said in a statement to Axios. "Based on our initial analysis, the alleged iPhone vulnerability affected iPhone 3G only and was fixed in 2009 when iPhone 3GS was released. Additionally, our preliminary assessment shows the alleged Mac vulnerabilities were previously fixed in all Macs launched after 2013."
Apple added that it has "not negotiated with Wikileaks for any information."

We have given them instructions to submit any information they wish through our normal process under our standard terms. Thus far, we have not received any information from them that isn't in the public domain. We are tireless defenders of our users' security and privacy, but we do not condone theft or coordinate with those that threaten to harm our users.

Trump orders tougher Visa screenings

J. Scott Applewhite / AP

President Trump is ordering tougher screenings for Visa applicants as part of his "extreme vetting" policy. Last week Secretary of State Rex Tillerson sent four cables to U.S. embassies and consular officials demanding scrutiny be tightened up, as originally reported by Reuters.

The new rules don't apply to 38 countries who can be admitted using the visa waiver program, including Australia, New Zealand, Japan, South Korea, and most of Europe.

Profiling and delays: This will include "mandatory social media check" if an applicant has been in a territory controlled by ISIS. Such checks are rarely done at present, former officials told Reuters. Consular officials and immigration experts told the NYT this will make it much more common to be denied a Visa to the U.S. and they fear this might lead to profiling based on nationality. It will likely also extend Visa review times.

Context: The cables were issued to complement the travel ban that was upended by a court in Hawaii, but some provisions were remedied to abide by the temporary restraining order. Namely, questions specifically aimed at applicants from the six countries listed in the ban were rescinded.

Trump's ultimatum: If vote fails, Obamacare stays


Budget Director Mick Mulvaney has just laid down a gauntlet to House Republicans on behalf of President Trump: pass this bill, or Obamacare remains in place.

Members of the conservative Freedom Caucus want more concessions but, according to Mulvaney, Trump will not negotiate further.

The president demanded a vote tomorrow, and now it appears he will get it. He is all but daring Republicans to vote no.


Twitter is weighing whether to build a paid version of TweetDeck

Richard Drew / AP

Twitter is considering whether to build premium software geared toward power users of its service.

The company already owns TweetDeck, a program geared toward those who juggle multiple Twitter accounts and spend a lot of time on the social media service. A paid version could offer extra features and bypass advertising.

Andrew Tavani, managing editor of Women in the World, first spotted a message from Twitter about the potential service.

Still pondering: It appears the idea is still in the early stages and Twitter hasn't decided if it'll build this. "We're conducting a survey to assess the interest in a new, more enhanced version of TweetDeck," a Twitter spokesperson told Axios, adding that Twitter is "exploring several ways to make TweetDeck even more valuable for professionals."

Why it matters: Twitter acquired TweetDeck in 2011 from developer Iain Dodsworth, but hasn't done much with it since as far as expanding features and capabilities. This could be a welcome option for users for whom Twitter is a critical part of doing their job.


Here are the AHCA changes demanded by the Freedom Caucus

Alex Brandon / AP

The key changes to the Republican health care bill demanded by the conservative Freedom Caucus:

  • A repeal of ACA's Essential Health Benefits (like emergency or maternity treatment) guaranteed under Obamacare
  • An elimination of the "single risk pool," which prevents insurers from splitting the market into healthy and sick groups
  • An elimination of rating restrictions, which allow insurers to base premiums only on age, area, tobacco use and family vs individual plan
  • A repeal on lifetime or annual limits
  • A reversal of standard documentation mandates, which make it easier to compare insurance plans
  • A reversal on Medical Loss Ratio standards, which force large insurers spend at least 85% of premiums on claims

Why it matters: These changes would appease the Freedom Caucus, but could see moderates abandon the bill.


Fox News: GOP expects 'smoking gun' proving Obama admin spied on Trump

Jack Gruber / AP

Republicans in Congress are expecting a "smoking gun" showing the Obama administration intentionally spied on Trump associates, and possibly Trump himself, Fox News reports:

The intelligence is said to leave no doubt the Obama administration, in its closing days, was using the cover of legitimate surveillance on foreign targets to spy on President-elect Trump, sources said.

A source told Fox that the surveillance left a "paper trail" indicating there was "no other plausible purpose... than to damage the incoming Trump administration." No, Trump Tower wasn't bugged, as POTUS claimed, but if the report is accurate his transition team was targeted for surveillance.

What's next: Fox says the House Intelligence Committee expects to receive the evidence this week. Trump said he felt "somewhat" vindicated by Devin Nunes' statements yesterday about "incidental" surveillance of Trump's communications. Expect him to be less restrained if this report proves accurate.


Marketo apologizes after video promo for its conference panned as sexist

Marketo, which specializes in helping companies promote themselves, apologized Thursday after one of its own promotions fell flat.

The ad, promoting an upcoming Marketo conference, featured a ditzy female newscaster and the company's male CEO, Steve Lucas. Marketo told Axios the ad, which was roundly criticized on Twitter, has been pulled down.

We sincerely apologize for the offense we caused with what was intended to be a light-hearted promotion for Marketing Nation Summit. The video was created to promote the conference, playing off our theme of engagement. Marketo has always had a steadfast commitment to championing diversity and empowering female leaders in technology and beyond.

Theranos offers shares to investors if they promise not to sue


Theranos, the embattled blood-testing company, plans to offer additional shares to existing investors if they agree not to sue the company, according to a report from the Wall Street Journal citing anonymous sources. Theranos reportedly only has $200 million in cash left, but is already facing multiple lawsuits, including from former partner Walgreens and investor Partner Fund Management.

The deal: The shares would come from founder and CEO Elizabeth Holmes' personal stake in the company, which would result in her losing her majority ownership. According to the Journal, early investors aren't included in the deal, and weren't even informed of it.

Murdoch exit: Theranos has reportedly agreed to buy back the stake Rupert Murdoch, the executive chairman of News Corp. and 21st Century Fox, purchased for $125 million in 2015.


Valeant's ousted CEO made $72.5 million in 2016

Manuel Balce Ceneta / AP

Michael Pearson, former CEO of Valeant Pharmaceuticals, cashed in $72.5 million worth of stock and severance pay in 2016 even as he and the drug company were under federal investigation for accounting fraud and a billing scheme tied to a specialty pharmacy it secretly owned.

Pearson took home $60.5 million in stock and the rest in severance pay and other benefits, Valeant disclosed Thursday to the Securities and Exchange Commission. He also still used Valeant's corporate jet. Joseph Papa replaced Pearson last year, and Papa earned $62.7 million even though Valeant remains mired in trouble.

Valeant's stock has cratered since the middle of 2015, and it has become a pariah in the pharmaceutical industry. Pearson led Valeant since 2008, building the company up on the controversial practice of acquiring drugs and jacking up the prices.