Peloton Interactive, Inc. (PTON) Earnings Call Transcript & Summary

Welcome, everyone, to our next session here at the 30th Annual Goldman Sachs Communacopia Conference. For those who don't know me, my name is Eric Sheridan. I'm Goldman Sachs' U.S. large cap internet equity research analyst. Thanks so much for joining today, and it's my pleasure to host the team from Peloton. We've got Co-Founder and CEO, John Foley; and CFO, Jill Woodworth. John, Jill, thanks so much for being part of the conference this year.

Thank you, Eric. Congrats on the new role. We're excited to chat with you.

Thanks. John, I'd love to start with you. I think there's been so much talk of the strategy and the positioning of the company and what the company is trying to solve for over the medium to long term in terms of aligning against this big secular theme that the company has tapped into. Maybe just set the table for us in terms of what are your big strategic priorities, how do you see the company positioned at the exit calendar '21 into calendar '22. I know we have to reference fiscal '21 and fiscal '22 for you guys a little bit. But just from a calendar basis and a priorities and an opportunities basis, maybe set the table for us.

Yes. So we're calling 2022 an investment year. I'm sure we'll get into what that means specifically from a financial perspective. But we see the opportunity in fitness as so huge in the U.S. and abroad. As you think about the failure of fitness for decades of the gyms didn't really work. The gyms don't feel like they're going to work moving forward, and we can talk about that if you want to. Home fitness was never a great category. You had some content and some hardware, but never an integrated experience that really was engaging and immersive. And then you had boutique fitness, which was something that exploded in the last probably 15 years that I think is fantastic, but it's very expensive, and it's hard to get to. And again, you have the same friction of its different location. It's expensive and more and more wasn't working for people itself and especially going into COVID. Obviously, it's shut down. So we think that the future of fitness is in the home, it's these -- better location, better value. We can talk about the price drop in the Bike and our pricing strategy and how it informs our financials. I'm sure we'll get into that as well. But we think 2022 is going to be a fantastic year. Obviously, winning Tread this year, getting that off the ground. And just a couple of weeks ago, it came back on sale in Canada and the U.K. and now for the first time, the lower-price Tread is available in the U.S. So we're going to continue investing in software and content across all of our fitness verticals. We're going to continue investing in scale, supply chain for our Bike and our Tread lines. And then we've talked about -- or I think Jill alluded to a few months ago that this is going to be a big year for new product development and new product releases. So it's a big year for us. And then next year, I think Jill alluded to the fact that next year, we plan to be profitable again. So this is an investment year. And we think this is a horse worth riding and a race worth winning, and we're super excited about Peloton's future.

Great. And there was a lot in there that I want to unpack. Maybe sticking with the strategy and the product road map first because I think there's -- that's probably the biggest thing we try to focus on in terms of unlocking the big opportunity over the long term. Maybe talk a little bit about what you're seeing from your subscribers and your members and from a utility standpoint that gives you confidence in layering those investments and that product road map on top of what you think you've tapped into over the last 12 to 18 months.

Yes. So I think the highlight there, Eric, is we are going to win. We are winning cardio. The bike is one of the greatest cardio machines on the planet. I think the Tread, the lower-priced Tread is it's equal from a cardio perspective. But this year, we plan to invest in and also owning strength. And I will tell you the Tread itself is part of that strategy, to be honest. When you think about fantastic boot camp workouts, if you've ever taken an Orangetheory work out or Barry's Bootcamp workout, we have better content than those offline brands. And it's in your home, a variety of instructors, the great software, the great community, the great engagement that you know and love from Peloton, but you get a Peloton Tread. And one of the things that we are going to invest in this year is the awareness of why the Peloton Tread is not only better and safer, but also not just a treadmill. It is a portal to a full-body workout. So one of the things we really need to invest in. Obviously, from R&D, we're investing across a number of different categories. But this year, we're also investing in marketing of the Tread from an awareness perspective and an education perspective of why it's different, why it's better. Our programming will get you on the Tread and it gets you off the Tread. You grab your weights, you do push-ups, you do plank, you do all kinds of different body weight movements as part of the circuit, then you get back on the Tread. So it's fantastic cardio, but it's also great upper body strength work out as well. So that's one of the investment opportunities this year. So we plan to own cardio and own strength. We do have some things in the R&D pipeline beyond the treadmill that are going to help us own strength. And if we own strength and if we own cardio, we're going to shift tens of millions of people out of gyms and into their home where they can get more fit at a better value, at a better location and all this stuff. So that's kind of -- that's what we're excited about right now, Eric.

And maybe just one more follow-up for you, and then I want to bring Jill into the conversation. You talked here a little bit about consumer awareness of the product, consumer awareness of what the product can do for a consumer in their own home. And then you referenced a little bit on pricing strategy. Can you talk about all 3 elements of those and how you think you need to unlock or drive home greater awareness of each of those in terms of driving some of the adoption curves you've talked about going back to the September 2020 Analyst Day?

Yes. So if you go back 7 or 8 years ago to when we launched Peloton, it took us 3 or 4 years to educate consumers on what a Peloton Bike was. It wasn't a stationary bike in the home with a screen. It was -- what was the software, what was the content, what was the experience and what was the community, what was all that goodness? Why did it make sense to buy a $2,000 stationary bike? If you remember, Eric, the challenges of raising money in the early days, people didn't understand what the Peloton bike was. Why did you need this thing, why did you want this thing, why was it different or better than what had come -- there was a lot of hair on the categories. You knew fitness has been what we call a dopey category for decades. And it wasn't until Peloton brought in hardcore software, hardcore media and vertically integrated business strategy, including the stores and the manufacturing, the logistics that really unlocked some fantastic magical things that happen in your home or your basement or your living room at this point. And that was the Peloton Bike. We believe that the same challenge and the same opportunity exists with the treadmill. You -- there is an asset and a liability of the treadmill knowledge in the category. People know the treadmills, what they are, and so people know that Peloton came out with a treadmill. So if you're interested in a treadmill, you're going to be -- you're going to look into the Peloton treadmill. So that's an asset. The liability is that treadmills have not been awesome pieces of -- they've been hardware for decades and decades. Ours, just like the Peloton Bike, it's not about the hardware. Of course, our hardware, we believe, is the best. But it's about the class content, the programming, the circuit workouts, the boot camp workouts, all of the great instructor-led fitness classes of all different varieties. You can do a pure running class, but you also might want to do a bootcamp class, you might want to do a strength class. You might want to do all this type of stuff that happens. And I will point out what's interesting from an opportunity perspective, Eric, is the treadmill category has traditionally been 2 to 3x bigger than the stationary bike category. That's just on the hardware side. Similarly, on the content side, the Orangetheories of the world and the CrossFits of the world are orders of magnitude bigger than the SoulCycles and the Flywheels ever were. So we think not only is the hardware category bigger on its own, but the content and the desire for full body programs that go so fast because you're doing something in 3 minutes and you're jumping over here and doing something for 2 minutes, you're jumping over here. And all of a sudden, a half hour goes by and you feel fantastic. So it's just a huge opportunity for us. If we're going to own global digital streaming fitness, we need to own Bike, which we can talk about why we were aggressive with the price so that we can democratize the access and definitely own Bike. We also plan to own treadmill, but the treadmill is a lot more than people understand, and that's the education and that's the opportunity and that's the investment. When we talk about investments this year, it's not only R&D investments. It's not only investment in the price to -- the $400 price drop in V1, but it's also investments in the brand and the awareness and the marketing that you're going to see in the coming weeks.

Great. Okay. Jill, turning to you. John referenced a lot of investments in there in terms of the forward fiscal year. I want to make sure investors have the right messaging from you directly as to what some of the key takeaways from them. You obviously just reported earnings in the last couple of weeks, put a lot out there in terms of the way you wanted to frame fiscal '22 and how the company was positioning against those investments. Maybe set the table for us on that, I think that would be super helpful.

Great. Well, Eric, forever, our biggest goal has been to grow household penetration. Once people have a Peloton product in their house, our engagement stats are incredible, right? People use our product, our product works and people are incredibly engaged with the platform. And so our goal really is to maximize the number of Peloton Bikes and Peloton Treads and future products that are in the household. And so when you think about the investments that we're making this year, Obviously, what we've always wanted to do is grow households. And to do that, right, you need to launch new products, and we're excited about the Tread launch in the U.S. a couple of weeks back and relaunching in Canada and the U.K. We're excited to continue to expand geographically to do so as well. And we just expanded into Australia a couple of months ago, and that launch has been incredibly successful. We seem to learn a lot each time we launch in a new market and get better and more efficient as we go. And then one of the big stated objectives, and we can talk a little bit about the price drop, is we've always wanted to make our products more accessible. And so when you think about the profitability curve, yes, we have a model that will be profitable, and we talked about it on the last earnings call, we will be profitable again next year -- fiscal year. But we are continuing to make these investments and drive accessibility, right, which -- and drive new products and drive new markets, which take capital to do that. And so certainly, this year, as John said, it's an investment year. We're annualizing a lot of the infrastructure investments that we put in place in R&D investments through acquihires and through organically growing our software and hardware engineering teams. We are launching the Tread, which does carry a lower gross margin. And of course, the Bike price reduction also had an impact on margin. But we expect as we get through the year, we're going to be leveraging a lot of these costs so that next year, we will be again profitable. So from our perspective, we focus on getting the household, which means we get a subscriber, which -- and we focus on the unit economics, right? We have incredible lifetime value associated with our subscribers. And what we did last year in COVID, when we pulled back on marketing, of course, due to the supply constraints we were faced with at the beginning of the pandemic, right, we obviously were pulling back on marketing. We had what we call negative CAC, which means we were profitable day 1 with that subscriber because we didn't really have to spend to acquire that customer. They were coming to our platform organically. And this year, right, we are now reinvesting. We have very low brand awareness in Tread. So we will be reigniting marketing. We never even last year had an opportunity when we launched Bike+ and did the original Bike price drop last September, we never even had an opportunity to tell that story in a meaningful way. So we are so excited to then reinvest in sales and marketing to drive awareness of the trend, which is low, and drive awareness, of course, of the new pricing of the bike. And so -- and it's all to get that subscriber in that household, which when you look at the time horizon implied by our churn and you look at the subscription margin associated with that, which over the next couple of years, will be above 70-plus percent, we love those economics. It's a few thousand dollars of lifetime value per subscriber, right, for very little upfront investment when you take into consider what we make on the hardware and what we spend in sales and marketing. And so unit economics this year, despite all of these investments are incredibly attractive to us, and that's really what we're playing for.

Okay. Okay. Great. And John, I wanted to come back to you, both you and Jill referenced it. Maybe take the mantle here and talk a little bit about the decision from a strategy standpoint behind the price cut of the core Bike product, how you wanted to position it in the marketplace. And I think more importantly for investors is what do you think it does for the competitive dynamic that you see out there and how it positions Peloton as a company and a brand vis-a-vis the competition.

Yes. I love that you asked us, Eric. I'll start with the competitive positioning. You might have heard me say in the past couple of years, my frustration when someone asked me about what about the low-cost Pelotons that are popping up. These companies that are differentiating themselves on price versus better experience because there is no better experience than the Peloton content, software, hardware, vertical integration and our kind of 7- or 8- or 9-year head start on the category. So there'd be an inferior product, and it would be cheaper. And the questions would come, what about those people? And Eric, I believe -- you could obviously fact check it, the Peloton with the $1,495 price point is now the lowest price indoor stationary bike with a 22-inch screen. So even vis-a-vis the low-cost copycats, we have now undercut them. So now you can get a Peloton bike, which is 5 to 10x better for less money. So we basically, I believe, have shut the door on the idea that there's going to be another bike competitor. And that was by design, to your point. That's -- we wanted to do that. One, it was the right thing competitively and strategically. But two, it's also the right thing for our members to really welcome more people into the fold. Secondly, to your question, what I think Jill was alluding to here, which is a critical thing that is kind of our true north at Peloton is the unit economic thinking around the margin and the hardware and the efficiency of our CAC that leads to a net CAC concept, so how much are we paying, one, to acquire a member from a CAC perspective, how much margin is in the Bike. Those things largely negate each other. We have traditionally, to Jill's point, last year, we made money on the first transaction. This year, we're investing 5% or something nominal, call it, roughly breakeven on the first transaction or certainly after a month -- a couple of months of subscription. So we believe that if you can spend $100 to lock in $3,000, you would do that all day. And so that's kind of where we -- how we frame the net tech idea and the investments we're making and the reason why we are comfortable doing the $400 price drop now for a couple of reasons. One, we finally had the capacity in our supply chain. It's the first time we've ever had enough capacity to be able to consider offering the price. For years and years, it was an academic discussion because we couldn't make the Bikes fast enough. Finally, we've -- all of our investments are paid off, allowed us to do the price drop, allowed us to shut the door on competition. And I will say one other fun thing to think about is not only the annuity on the $39, but we believe that the Peloton Bike is a beachhead into a household so that we will be able to sell them future products. I'm going to remind your listeners, Eric, that if you get a Peloton Bike and you pay $39 a month for your subscription, you could get a second product, call it a treadmill and you don't pay incremental. So if you get a Peloton Bike and a Tread, you're paying $39. Everyone in your household can use the hardware. You're going to -- as many accounts as you want. So you and your live-in partner and your children or whatever can all use it for $39. And you can see then us bringing new products to market and you just layer them in without paying an incremental sub. So we think about the sub as a household. We think that over time, the households are going to want to scale their Peloton gym. We're going to be able to sell them apparel, which is now much higher margin than it was yesterday because of our direct to contract manufacturers in Asia and wherever -- and Los Angeles, where we're getting a lot of this stuff made. But the margins, not only is it better, higher quality, better fabrics, better fashion, better fit and all the stuff that our apparel line represents, but now it's much higher margin. So all of this stuff is kind of a strategic investment, and we think we are playing chess where others are -- to be honest, aren't even playing checkers. And so we really feel that we are playing the long game. We believe that this could be a winner take all. It should be a winner take all, and it's going to be very hard to compete with Peloton with this type of strategy where we're thinking long term. We're willing to make the investments, and we are totally committed to increasing the value of our $39. More software, better features, more content, better content and giving you the scale of more products all for the $39 membership.

The only other point I might make, Eric, there, which I do think is an important one is unlike other fitness equipment companies, we're going to have a very, very small portfolio of products. The way we differentiate the -- our Tread, our Bike is through the content and the software. And every time you get on a Bike or Tread, it's a better experience because of the updates that we have to our software and because of that fresh content that our members get every single day. And so when you think about that, right, it's all about them getting those economies of scale, and it's always been our goal, right, to get economies of scale in manufacturing, right? So producing very few SKUs, getting that economy and then passing that on to the consumer. And we initiated 0 APR financing a few years ago. We initiated 30-day home trial last year when we launched Bike+. We cut the price of our original Bike then. But of course, we couldn't cut it very far because we, of course, had a supply demand imbalance at the moment. So this has always been a stated goal. And the most recent price reduction is just another point in the time line that we were able to do that, but we've always been about making our products accessible.

Great. And along those same lines in terms of making product accessible, I think I wanted to pivot to the Digital subscription and how you guys continue to see that as a mixture of introducing the brand to consumers possibly acting as a lead generation tool towards the integrated strategy and how we should think about the Digital subscription aligning itself with the broader connected fitness in the home strategy.

Yes, it's talking about Digital. So thank you for asking, Eric. Let me start by saying there's 2 ways that we love Digital, one of which, when we market Digital and we market it when the marketing is most efficient. We talk about fish -- when the fish are biting, which generally is in the summer. It's more in the cold winter months and the new year's resolutions and the holidays. So you will see us coming on air with television on the Digital business. But one thing that we found with marketing our Digital business is you're trying to push the Digital product, increase awareness because awareness still isn't as high as it could be. But we -- when we market the Digital business, we also sell Bikes and Treads which was a cool spillover effect and something we're excited about coming into this fall when we start to market our Tread and our Digital and the Bike and other future products, that portfolio marketing and brand marketing and how it has a halo effect and more efficiency, which we're very excited about. So that's the first thing I'll say about Digital. The second thing is you're absolutely right. We believe the getting people into the top of the funnel via Digital, which is obviously the lowest friction way to get into our community and start to consume our content, often days with a 30- or 60-day free trial. Last year, we had a 90-day free trial around COVID so that we could help the mental and physical health of people that were stuck in quarantine. But we have seen -- and that we talked about north of 20% conversion over time into our Connected Fitness business. So we love marketing Digital. We love welcoming people in. We do feel like it is the most frictionless way to get people into the community and then they start to fall in love with our software, our content, our instructors. And then eventually, you'll say, "Hey, honey, for our anniversary, why don't we upgrade the dusty, old treadmill or why don't we finally invest in a Peloton Bike now at $39 a month on financing and the treadmill at $58 a month on financing or $59?" It's just an incredible value, and we do think that, that investment in Digital and the awareness of Digital is something we're going to continue to invest in. Unfortunately, we are disciplined marketers. So it's been a little frustrating that over the summer, if we're going to spend x amount of dollars a year on marketing the Digital business, we want to do it in the most efficient time of the year, which is coming up.

So maybe building on that, if Digital is sort of introducing the brand in the top of the funnel, and the bottom of the funnel is, I own 2 or 3 pieces of equipment and you've got that beachhead, as I think Jill said it, in-house. In between what we didn't get to spend enough time on with our initiation when you're trying to run a couple of hundred pages on companies is, things that are building in the middle where you're announcing partnerships with health care companies, corporate wellness, possibly a hospitality sector over time. And it seems like if I had a Digital membership, I could log into your equipment in all of those various formats or settings, how does that sort of initiative -- and it's a couple of initiatives that I've just thrown at you, buried in there -- sort of build upon the brand awareness as well as sort of bringing more people into your ecosystem? Help us understand a little bit the strategy behind some of those initiatives.

Your call, Jill, do you want me to jump in?

Sure. Go ahead, and I can pick up.

Yes. We both love this one. So yes, corporate wellness is something that we couldn't be more excited about. Our thesis, Eric, is that every household in America and then Germany and the U.K. and Canada and Australia and future markets, every household is going to want to be a Peloton household. That is, again, why we dropped the -- continue to lower the price. We want a "chicken in every pot" strategy. We believe that everyone should be able to be fit, everyone who wants to be fit. It is my thesis that everyone does want to be fit. It just has been hard to do it. It's not -- it hasn't been motivating. It hasn't been convenient. It hasn't been a good value. So as people discover Peloton, more and more people want it. So to Jill's point about pricing and accessibility, corporate wellness is an opportunity for us to continue to make it more accessible, whether it's because your company is going to pay your subscription, your company is going to subsidize the Digital membership, subsidize the pricing of the Connected Fitness hardware. We can partner with companies and insurers to potentially, in an opaque way, help us get the price of Peloton products more accessible for their employees and their insured. And so it's just one of the many strategies we believe is going to get everyone into the ecosystem. We know that companies and insurers want to change health outcomes. We know we're delivering that through our engaging platform in a way that has never worked. Gym memberships weren't changing outcomes. They weren't changing health outcomes and getting people to work out 10, 20, 30, 40 times a month. I will say something that -- I published a letter last week about the treadmill. And we're seeing that we have crazy engagement for Bike memberships. For households that have a Bike and a Tread, the engagement is 100% greater. So people who have a Peloton Bike and Tread in their house are not only working out a lot more than the gym, but they're working out more than just a Peloton Bike its own. And this is today, we're continuing to layer in more yoga, more strength, more Pilates, more meditation, more outdoor running, more -- you name it. We're continuing to invest in content. So you've seen every year, our engagement stats go up, COVID comp notwithstanding. So we're very excited about corporate wellness and what it means to the accessibility of our products, and as are the insurers and the companies, by the way, the reception to our corporate wellness offering has been fantastic and that team is scrambling to keep up, to be totally honest.

The other thing you asked about, Eric was hospitality. And you can imagine up until the last several months, we've been really focused on direct-to-consumer. And I would say hospitality back in the day was really borne out of our members asking for Peloton products in hotels. And now we're in thousands of hotels, but we had a very small commercial sales team. They were great but very small. It wasn't an area of focus for us. And so one of the reasons why we bought Precor was they have an incredible sales force that goes into hospitality and other locations such as multi-unit residential, colleges, universities. And that's never really been a sales channel that we've focused on. And so we're particularly excited as we welcome Precor into Peloton, that their sales force now has Peloton products on offer to offer alongside what they would have sold Precor products into hospitality. And we've given this stat out before, but it's pretty incredible when somebody rides -- you put a Peloton Bike in a hotel, and they ride it and they experience it. For every 1 we place, we sell 7 Peloton bikes. So just think about the fact that we're going to be able to put so much more muscle behind it now with Peloton Commercial being a fully fledged business for us. selling Peloton products alongside Precor. We think it's going to be a very powerful proposition for many hotels and fitness centers and universities and multiunit residential across the board. So that's another area that, again, as we think about the different layers and different sales channels in addition to direct-to-consumer, that has been sort of the bread and butter of the business. You've now got corporate wellness. You have the Digital funnel. You now have hospitality and so many other ways to sell our products, which is exciting for us.

I want to stick with Precor for a minute. The acquisition obviously had a couple of different elements to it. But jumping off of that into broader manufacturing capacity and how you see investments needed to meet demand, build the product set, even if it is a handful of SKUs, it's still -- there's a lot of demand. There's a lot of need for manufacturing. And obviously, getting product all around the world in the last 12 to 18 months has not been the easiest thing for folks to do. Maybe talk about that acquisition as a catalyst for where you broadly want to go with manufacturing capacity and some of the more recent announcements you guys have made about manufacturing here in the United States.

Yes. So we have said, Eric, that we are going to be making Peloton products in Precor North America facilities by the end of this calendar year. And I can tell you we are on track to do that. Great effort, to Jill's point, from a fantastic team on the Precor side and a real good culture fit between the 2 companies, which has been really cool to see. So we're on track. And to answer your macro question about manufacturing, we have incredible partners, fantastic partners in Taiwan largely, and throughout Asia for all different sorts of accessories and apparel. But the core of the tablet and Bike and Tread manufacturing partners are in Taiwan, and we expect to continue to invest in that and those relationships, you know we bought Tonic. So that was quite a commitment on its own. But yes, with our North Carolina, our Precor investments and our Ohio $400 million facility that we broke ground on a couple of months ago, and that's off to the races, and we're very excited about it. It's basically having a global network of manufacturing and optionality around where we make things and how we distribute it. Obviously, I think about the linear program of where things are made, there's changeover cost, distribution, storage and all of that hardcore global logistics reality that we have to juggle that we're getting more chess pieces and more options and having -- you can imagine it's a hedge against geopolitical risk and distribution costs and whatnot, but we are excited about our investments. We're going to continue to make the smart investments so that we can continue to be a growth company for years and years to come. And for us, in order to grow, it means having the capacity to make more Bikes and Treads and future products. along with the Digital business growth, which obviously doesn't require that and has more infinite scale. But again, we see that as a lead gen for our Connected Fitness business, which is our bread and butter, as you know, Eric.

Yes. I wanted to just touch upon briefly in the last 5 or 10 minutes we have here, talking a little bit about international expansion. You've launched in Australia. I think probably one of the questions folks like me get a lot from investors is what makes the market right for Peloton to go into? How should we think about the international expansion strategy medium to long term? I think you touched upon it a little bit, if I remember back to the slide deck in the September 2020 Analyst Day. But maybe just frame the international opportunity and what folks should be watching from the outside-in, what might drive decisions to move into international markets in the years ahead.

Yes. So we, as students of technology and media disruption, we look at what Apple has done with their iPhone and the iPad and when the inflection point of when international was bigger than the U.S. for Apple. We study with Netflix. Netflix International is now bigger than domestic. And so we know those growth curves and we know the investment and the return on investment for our early markets in the U.K. and Germany. To answer your question, Eric, we haven't seen a meaningful difference between the international consumer and the U.S. consumer. So we believe that these markets we're entering, and we will continue to enter, we know that for a couple of years, we'll invest. We look at our balance sheet. We know what we can choke down as far as new markets year by year. And we know that -- the return profile because it's modelable and we are getting better at it, to Jill's point, with each market we launch. We have second mover advantage on ourselves, and we are -- our international team led by Kevin Cornils is getting better and better with each new market. So we're excited about international. It will be years and years before our international business is bigger than our domestic business. For better or worse, our domestic business is just growing so fast, and it's still such a beautiful growth story on its own. So -- but we are going to make the right investments. We do think that, again, this could be a global winner take all. We do like the returns to scale on the manufacturing side and the software side and the brand side. If you think about a business like Salesforce.com, they are investing in software. They're winning the global CRM space because they've invested in software. We're going to do the same thing, and we believe that the global opportunity is fantastic, and we want to see the returns to scale against all of our investments as a global player.

And I guess we've just got a few minutes left before we're going to wrap up the session. John, maybe turning it back to you. We've talked about a lot on strategy, product, go-to-market, big opportunities you have in the company. Maybe give us a sense of how you and Jill and the Board think about allocating capital against all those opportunities. What are your top priorities, to reframe it again, as we go into fiscal '22? But how do you weigh and measure where to allocate capital when you see these opportunity sets, when you look out -- you're a company that has a much longer-term time horizon than a lot of folks. And thinking about a big opportunity, how do you align capital against opportunity, both short term and long term?

Yes. It's a good question, Eric. It's probably the hardest thing we do because we see so much opportunity, and we can't seize it all tomorrow. We would stress out our teams. To your point, we would stress out our balance sheet. So we are disciplined, I would say. A lot of people say, "Why aren't you rolling out products faster? Why aren't you rolling out markets faster?" And the answer is we are rolling out products. We are rolling out markets. We are also growing just our core business at a fantastic clip, obviously, through COVID, and we guided to 90 -- or a 56% sub growth this year on a COVID comp which is still real growth. So to answer your question, it's something we focus on. We want to be measured. We want to be thoughtful. We want to be disciplined. We -- growth is in our DNA. We have, until this year, grown the business more than 100% every year since we launched the company. We want to continue this hyper growth trajectory. So we think about investing for the future. And I think we're pretty good shepherds of capital, if not fantastic shepherds of capital. So I don't know whether, Jill, you want to weigh in with a little bit more teethy...

Yes. I might just highlight 3 areas, right? Obviously, supply chain is a big one. Having gone through COVID, where we had supply and demand shocks and frankly, there are a lot of issues that are still persisting as it relates to getting products from Asia into the U.S. And so sort of like when we bought Tonic, which was one of our third-party manufacturers in Taiwan, we did that because we knew they needed to scale with our business, and the best way to do that was to own them and ensure that they were making the investments needed to scale with the growth of our business. And when we think about the challenges that COVID created in the freight market and now with certain commodity cost issues, having domestic manufacturing and not having products sitting on the ocean for 4 months, 5 months, right? And having an ability to flex our supply with demand in a much more real-time way and actually having that manufacturing plant near where our customers are so that everything has just shortened and it allows for much smarter decision-making. So supply chain to us is an incredibly obvious area to focus on. And you think about a product like Tread, we can do that on a cost neutral or potentially better basis without all of the shipping costs for a large heavy piece of equipment that's coming overseas. And so supply chain is one area. The second one is we've grown incredibly fast. And we are -- we have made actually over the last year, and we'll continue to make a lot of investments in IT systems and supply chain technology to make sure that we're operating in the most effective and efficient way. So we are making a lot of internal investments to support that growth. And then, of course, the third pillar is always marketing, right? It is one of the biggest line items on our P&L, and we're always thinking about the trade-offs of marketing dollars versus showrooms and making sure that we're making really smart strategic decisions to bring our CAC into the most efficient place it can possibly be. So those are sort of the 3 buckets that I think we manage probably the most closely, and some of the drivers that are leading to the larger CapEx spend this year, of course, and obviously, reigniting marketing this year, which is great. It's obviously creating some deleverage in OpEx. But these are -- I think the one thing about marketing for us, and we've seen this. That's a long-term investment, right? It's not just hitting the P&L this year. We have to think about the long-term investment horizons and the customers that we're attracting to the platform through these marketing efforts. We have spent or 7 years building Bike awareness. And now we have a very long road ahead of us, right, to build Tread product awareness, which is very low compared to bike. And so we have a lot of work to do there, but these are really strategic investments in showrooms and advertising dollars that are going to pay dividends in the years to come.

That's great. Thank you so much. So I think, first, thanks to all the investors for tuning in to hear the thoughts of the Peloton management team. And then from me, thank you to John and Jill for being part of the conference, sharing your thoughts. Really appreciate you making time to be part of the conference and look forward to catching up with you soon around the next earnings season. Take care, everyone.

Thanks, everybody.