The Best One Yet - Interview with Peloton’s Co-Founder

Episode Date: September 27, 2019

Straight from the fitness tech pioneer’s IPO, we sit down with Peloton co-founder and COO Tom Cortese to talk about how they pitched investors, what drives customer loyalty, and if the stock ticker symbol should’ve been “SWET” or “SPIN” instead of "PTON".Learn more about your ad choices. Visit podcastchoices.com/adchoices Hosted on Acast. See acast.com/privacy for more information.

This is Nick. This is Jack. And this is Snacks Daily. This is also not a typical Snacks Day. No, it's Friday, September 27. Very true. We got something different for you. It's the best Snacks Daily we've ever done, though, even though it's different.

One company I peoed yesterday. It was kind of a big deal. So we covered one company for today. Yes, it's Peloton. We interviewed the co-founder and CEO of Peloton live from NASDA. Now, shares fell for Peloton on their first day of trading 11%. It shows you how volatile IPO day can be. Yeah, it's intense.

But we're giving you a full-body introduction to Peloton. straight from the horse's mouth. Stretch out your hammies. Get the glutes prepped. Get into third position. We are ready for this interview with Peloton's co-factor. This pod is great.

If you liked what you heard, hit us up and let us know at Robin Hood Snacks. We'll be back with the normal format on Monday. Let's hit these keywords and then we got our interview. By the way, thank you to the snackers who sent us questions.

We asked him during this interview. And he loved them. You tuned in the snacks daily. The snacks are about to hear-rain food. It's air candy. They don't reflect the views of the Robin Hood family. It's all informational just so.

You know, we're not recommending any securities. Nope. It's not a research report or investment advice. Not an offer or sale of a security. Right. Snacks is digestible. Business news for you. Robberhood Financial, LLC, member FINRA slash SIPC.

This is Nick. This is Jack. And this is Snacks Daily. We're excited to be live at NASDAQ for a very particular reason. We're here with Tom Cortesi, CEO and co-founder of Peloton. Tom, can you tell us, what we're doing here. Well, we are here today for a Peloton's debut on the NASDAQ as a publicly traded company. Big day. The IPO happened today. May we ask, how did you start your day? Was it with a

workout? Unfortunately today, I had to start my day doing whatever the NASDAQ folks told me to do. Okay, full disclosure. I got a 15-minute, like 80s-style ride in on a Peloton this morning. Well, the stock is trading now. This is Thursday afternoon. Yeah. We noticed the first thing was ticker symbol. We're kind of fans of creative ticker. symbols. I feel like there was a bit of a missed opportunity for Peloton. It seems like, all right, so we took the name Peloton, we shortened it to P-T-O-N, just took out some vowels. Cut out of vowels, squeezed it into four letters. What was the creativity? Was there anything else beyond the process? What do you guys consider? Oh, my goodness. You know,

of all the things that we have to consider on a daily basis, I think you've heard about all the different businesses that we build into one. This was just one where we didn't feel like it required a lot of our time, attention, and energy. And there were a few options. out there and this was the one we chose and we just ran with it. We're thinking about side hustling as a ticker symbol consult. Jack and I whiteboarded we had ideas we were like spin bike, flock, FLOK.

Absolutely. These are other operations later on if you get the opportunity. I do like flock. I do like flock. Okay. By the way, favorite two limiting. Favorite spin class on Peloton? Oh man, as I said to you guys before, you know, this is my family. All of these instructors are my favorite instructor

and you know Alex Toussaint has a very particularly special way of motivating me, so I can go there. Robin's been with us for so long. Jen Sherman is like a morning talk show for me. So depending on my mood, that's the beautiful thing. I can kind of pick and choose. They're all your babies. We get it.

So Tom, you founded Peloton with four of your buddies and business partners back in 2012. Back then, can you tell us, like, how were you making elevator pitches to invest in the company? Oh man, we were terrible at it. We were trying to explain, look, we're going to convert this entire industry that is this destination industry where folks are going to go to a gym, going to these boutiques. Oh, and we're going to take group classes and make them happen in the comfort convenience and privacy of your home. And people were just like, what are you talking about? So we were just terrible at it. But we kept on building and we kept creating prototype effort prototype to be able to showcase what it was.

Yoni, our CTO, even dubbed in as an instructor a couple times before we had instructor so that we can showcase, look, this is how it will work. And slowly but surely we were able to convert people who were clicked. And they said, if you could make that work, I'd buy one. And if I'd buy one, I think there are a lot of folks who would too. So today you have a station or a bike that looks beautiful. It's got kind of an iPad screen where you can stream classes and take a spin class at the comfort of your own. Yeah, not only an iPad screen with all the touch that happens to be way bigger than an iPad screen,

but you also have to be able to sweat all over it and it still works. So at every simple idea, SWET, sweat, take it. Not bad, not bad. So Tom, that's how the company began, that's how you're pitching it. How would you describe the company now, fast forwarding like seven, eight years? Well, now, you know, what I say is, you know, this has been the longest proof of concept ever, eight years in the making to prove to folks that you can move this entire industry. to a new place like we were talking about before.

Arcades of the 70s and 80s are gone, replaced by a better experience in your home through Xbox and PlayStation, right? Movie theaters are closing. Netflix is on the rise or Disney Plus. You know, and we see the gym, the destination sport of the gym where incentives are not aligned, right?

You join a gym in January, they pray you never come. You join Peloton. I have armies of people whose job it is to make you feel more motivated every single day than you were before. It's that's our mission. That's what we do. We serve our members. We started with bike with that with the proof of concept. You're going to see us go a lot further. So then Tom, what industry would you say defines Peloton? How do you place this into something? I mean, ultimately, it's, you know, it's health, wellness, and fitness, right? It's, and we're using media technology. We're using community, logistics, apparel, all of these pieces to be able to fuel that and create something that people truly want, that people can become truly engaged with.

So Peloton stock is available starting today. Yep. And anytime you're thinking about investing in a company, company that recently IPOed, we always tell our snackers you should check out the S1 document. Literally when we heard Peloton was IPOing like a month ago, that's the first place Jack and I went. We compare it to like a dating profile, but you have to say the good and the bad about yourself so that the person on the other side has a full picture before investing. One thing we noticed in Pelotan's S1 was the churn rate. To borrow a quote from Seinfeld,

it's real and it's fantastic. Tell us what is the churn rate and how is it so good at Peloton? I mean, we've had to pinch ourselves about this churn rate over the five years that we've been in market. And it's just, it is truly remarkable. What does it mean a churn rate? So it means that when you start paying for your Peloton subscription, you don't stop. And the reason why you don't stop is because you find value in it, right? Because you use it. As a matter of fact, and this is also an RS1, enjoy the read.

you see that actually people in our service use Peloton more year over year, not less. And that's just, that that just goes against, you know, most trends in fitness, most trends in, in subscription businesses. If you were spinning three days per week, your first year, you're spinning four days per week, your second year with Peloton? That's right. I think we're showing now, you know, on average Peloton bike members are riding nearly 12 times a month. So we saw that the average churn rate over the past year is 0.6%.

So every quarter, you have 99.6% of the Pelotonistas, as we call them, still subscribing to Pelotan. We calculated that that means the average user is going to have a 13-year subscriber life. Is that insane? I mean, the company hasn't been around that long. I mean, yeah, so you can make those lifetime value calculations and do those. predictions. We're not in the prediction business. We're in the business of waking up every single day and figuring out how to further engage our members. Because if we can keep them engaged, they're going to feel better, they're going to feel good about their investment, and they're

going to stick with us. We intend to keep on doing that day over day. So that's what we noticed in the S-1 that kind of stood out for Jack and I. It was like, how do we look at the individual peltonista and determine what their value is for the company? But on a broader level, Well, the other thing we talked about is, Jack and I always like to say this, which is the fat is bad, but the trend is your friend. And in this case, we're talking about fitness equipment, which has an experience with either being a trend or fat. Well, you look at Bowflex with, like, Chuck Norris and the total gym, or was Chuck Norris the total gym? He was, like, always working out of 3 a.m. kind of right. My mom got a Nordic track in the 90s. It's been in our attic for 20 years.

It doesn't move. You only go one direction. So what is Peloton thinking about, like, avoiding a fad, and how are you going to stay fresh and cool? Guys, I just have such a hard time with this one because how on earth could it possibly be that health, wellness, and fitness is a fat? It's actually a component of life that is a requirement, right? And so, you know, what this is about is about finding a way to engage folks in, you know, in a necessary behavior, a daily necessary behavior in a way that they enjoy and they love. I cannot tell you in more ways that it is. is 100% the case that we have proven that we can do that. And we will continue to prove that we can do that because that is where we stay focused.

So then this brings up another key point from the S1. So when Jack and I were scrolling through this thing, one thing we noticed was the term democratize. So I believe it said Peloton is democratizing access to boutique fitness. Big question there. Democratizing, but also you look at the price of a Peloton. Let's quickly tell the snack goes. The price is a little over 2,000 for the bike and a little over 4,000 for the tread. And then after that, you're paying a monthly subscription of like $39 a month.

Is it possible to democratize something so expensive? Let's try it this way. The average American, just looking at the U.S., the average American couple is paying well over $100 to belong to a shi gym. Am I allowed to say that? Sorry. Old sense. The average American is paying over $100 to belong to a gym.

It's inconvenient. Incentives aren't aligned. It's expensive. You don't have access to great instructors. When you do get access to equipment, it's probably old equipment that 50 people earlier that they sweat it on that that that's the experience that that you can have going to the gym peloton financed for 39 months zero zero percent zero percent apr is fifty eight dollars a month layer on the subscription at thirty nine dollars a month

for the entire household right across and you get access to cycling boot camp uh indoor running outdoor running yoga meditation uh stretching strength training and whatever else we start, we, we start building. That is remarkable value, and that's just the beginning of us democratizing fitness. So then, Tom, that brings up the next question, which I think one of our Snackerson and David, yes, exactly, which is, all right, let's think bigger picture here. Would you guys be taking kind of a Tesla approach where you introduce the higher end model? That gets all the brand attention, gets people excited, it's sexy, but then you start offering

models at a cheaper price, so you can really access that market. Because I see what you're saying over time how the value's there, But up front, that's where people are paying out of pocket quickly. And again, our first shot at removing the pain of upfront is to take on that burden of 0% APR. So there's no upfront cost. You get into Peloton for just $58 a month. That's the only payment on the equipment. So we've completely removed that barrier.

That's step one. We think that there are a number of other steps that we can take across different categories to continue to find new ways to bring lots of people into the Peloton membership. So you started Peloton in 2012 with four other people. What, and today is totally a highlight. I mean, you got a party this evening? We've got a party this evening. Really excited about that.

And then back to work tomorrow. We know where it is, but we're not going to tell me one. Can you tell us about a low light? What was a big F up that happened that you guys looked back on and hopefully laugh about? Oh. Maybe cry about. Look, it was a really tough first eight years. And what's actually crazy is it's, you know, eight years of perseverance to get to this starting line, right?

As I said, this was like one giant proof of concept. And now we're going to go blow this up across the globe, across the global fitness. One giant hill climb. One giant, one giant, one giant. In third. One giant hill climb. Yeah. You know, and so there were, there were moments where, you know,

funding was dry where uncertainty was there. There are just personal moments where you have to wake up, you have to wake up that morning and remember that you've got to walk in and you've got to keep the team motivated, even though you've been on the slog for so long. You know, that stuff, that stuff is hard, but we knew from the moment we created that first prototype when we started putting people on it,

we knew that lights were going off. We knew that people were getting engaged. We knew that there was a there, and we just had to keep driving. Time I got to ask a little further on that one. You know, you talk to entrepreneurs. Jack and I are co-founders ourselves, having started a company together,

and, you know, you talk about that climb, that building, the highs, the lows. But is there one that kind of sticks out to you in particular where you're like a high? I'm just hitting with a lows. That's true. That's true. Let's go with something positive.

And you can't talk about the IPO. Let's do something before this. You know, it's so funny looking back. Yeah. There were so many moments that felt like highs. And I look back and I'm like, really? That wasn't that big of a deal. We sold 188 bikes through Kickstarter.

We thought we were champions of the world. 188? 188. And I wonder who has those bikes now? We put, we opened our first store as a pop-up in the Short Hills Mall, which is a suburb of New Jersey. Me and my co-founders stood there on Black Friday with the only six bikes that we ever made in the world standing in that showroom, telling people what an amazing product and services

could be. And I think we got, I think we got somewhere between like four and 11 people to buy that day. Yeah. We must have gone out and had the biggest, the, the biggest party, right? So in those moments, we thought we were on it looking back, man, those were small moments. Those big, those round numbers, when you hit a round number with anything, it's pretty sad. And 188 is not a round number. No, that's a good point. So we'll round up. The IPO, this is. This is a round up. The IPO, this is. is a big moment personally for you, for your coworkers. I mean, you have pieces of paper that's a Peloton Inc. stock. Until today, you couldn't do too much with it, but after today or some lockup period, you might be able to sell. That's a nice moment. You guys can kind of celebrate.

What does this mean for you and your co-workers? Look, for us, it's, I feel like this is so typical Peloton. It's like, okay, today we IPO tomorrow, we're back to building. The road ahead is still this monster for us, we see this massive opportunity. We know it's there. We know what, we know, we know we know we're building. We know that we know the race worth winning is, is still the race that that we're in. So I think we're excited that this is done, that this milestone is over. We've got we've got the capital to go and execute on our plan. Tomorrow we're back to work, maybe a little late. Yeah, I got speaking of your plan. One of our snackers sent in a question. We had a few of them actually a couple people asked about this. We had Sarah

Forney and Ian Wheeler asked about this in particular for you. What's the next product? And what do we have so far? We got the bike and the tread. And we'd like to point out, Fitbit just mentioned last week it's interested in selling itself. Fitness is available. Are you interested?

Wow, that's a bunch of questions. All in one. No, we're not going to be announcing our new product on your show today. Okay. Yes, we have remarkably talented folks who are constantly working to try and and understand what could be next. And that's about all I could give there. Have you ever thought of a bike that would be a generator

that powers the studio and the building in the city? Right, a snacker Alex Milanozki asked us that. It was actually one of the early ideas before we started, before we started Peloton. We decided to focus on engaging experiences that excite people to the extent that that becomes something one day down the line. we'd look at it. So Tom, after every snacks episode, Jack and I end it, where I asked Jack,

what's the takeaway for our snackers here? So we've got to ask you now. Tom, what is the takeaway for Peloton for our snackers to know? What is the takeaway for Peloton? Yeah. This is a remarkable business. We're changing an entire industry and we're doing two amazing things for that industry. We're changing the way people think about fitness. It becomes fun and engaging and convenient. changing and we're changing where it happens. It's no longer this destination sport where where incentives are are misaligned and we are excited as hell to keep on building. Tom, congratulations on your IPO. I think we burned 300 calories during this energy. Can we track that? Yeah. Thank you for being on snacks daily. Snackers, for more, you can sign up for our free newsletter and our free podcast at

snacks.robin hood.com. Have a great one. Thanks, guys. Thank you both. Thanks, Tom. This is Jack. Nick and I both on stock of Tesla. The Robin Hood Snacks podcast you just heard reflects the opinions of only the hosts who are associated persons of Robin Hood Financial LLC and does not reflect the views of Robin Hood Markets, or any of its subsidiaries or affiliates. The podcast is for informational purposes only, is not intended to serve as a recommendation to buy or sell any security, and is not an offer or sale of a security. The podcast is also not a research report and is not intended to serve as the

basis of any investment decision. Robin Hood Financial LLC, member FINRA SIPC.