The news of Barry McCarthy stepping down as Peloton's CEO sent shockwaves through the market, coupled with another restructuring plan aimed at slashing over $200 million in annual expenses. While the surface narrative paints a picture of cost-cutting and leadership transition, a deeper dive into the Q3 2024 earnings call transcript reveals a potentially explosive growth engine that seems to have flown under the radar: Peloton's international market.

While analysts are understandably focused on the company's struggle to regain growth in a post-pandemic world, the transcript reveals a fascinating contrast: despite international expansion being targeted for cost reduction, it's showing strong signs of robust organic growth and remarkably low churn rates mirroring those in the US. This begs the question: Is Peloton inadvertently trimming its most promising growth avenue?

Let's look at the numbers. Q3 saw Peloton's international Paid Connected Fitness Subscriptions increase by a healthy 8% year-over-year. This stands in stark contrast to the struggles faced in the US market. Additionally, international churn rates are astonishingly low, mirroring the stability seen in the US, indicating high member engagement and satisfaction. This speaks volumes about the inherent strength of the Peloton product and its global appeal.

The transcript highlights Peloton's intention to cut its international operating losses in half, achieved through a more targeted and efficient go-to-market approach. While this sounds prudent on the surface, it's critical to understand that the "inefficiency" cited by Liz Coddington, the CFO, stems from LTV-to-CAC ratios not meeting target levels. In other words, they're acquiring customers, but not at the desired profit margin.

This presents a captivating hypothesis: Could Peloton's international "inefficiency" be attributed to the nascent stage of its global expansion? The transcript itself admits that Peloton's unaided brand awareness is "still really pretty low in international markets," aside from Canada. It's plausible that the current LTV-to-CAC ratios are simply a reflection of the necessary initial investment required to build brand awareness in new markets.

Consider this: Peloton's success in the US was built on a foundation of high brand awareness cultivated through aggressive marketing and strong word-of-mouth. International markets are likely on a similar trajectory, albeit at an earlier stage. As brand awareness grows organically in these markets, the LTV-to-CAC ratios are likely to naturally improve, leading to higher profitability without the need for drastic cost reduction.

Furthermore, the transcript hints at the vast untapped potential in international expansion. Chris Bruzzo, Interim Co-CEO, emphasizes "lots of growth potential for us in our existing markets, and even looking to efficiently expand to new markets." This indicates a strategic recognition of the global opportunity, despite the immediate focus on operational efficiency.

The transcript also reveals that Peloton is focusing its international marketing efforts on "segments where we have the highest product market fit." This data-driven approach suggests a strategic refinement rather than a retreat. By targeting the right audiences and honing their messaging, they could unlock even faster growth in their most promising international segments.

International Paid Connected Fitness Subscriptions Growth

The following chart shows the year-over-year growth of Peloton's international Paid Connected Fitness Subscriptions.

Here's the crucial takeaway: while the cost-cutting measures and leadership transition are significant developments, they might overshadow the quiet but potent growth narrative unfolding in Peloton's international markets. The combination of strong organic growth and low churn rates suggests a high-potential, self-sustaining growth engine that could fuel Peloton's next chapter.

Imagine this: Peloton's brand, synonymous with at-home fitness in the US, replicated on a global scale. As the company navigates this period of transition, it's crucial for the new CEO to recognize and fully leverage the international opportunity. The data suggests that with the right strategy and measured investment, Peloton's global expansion could be the key to unlocking explosive growth and shareholder value.

"Fun Fact: Peloton's international expansion began in 2018 with its launch in Canada and the UK. Since then, it has expanded to several other countries, including Germany, Australia, and New Zealand."