Peloton to charge $95 activation fee for used equipment subscribers.

• New subscribers who purchase used Peloton hardware from the secondary market will be required to pay a one-time $95 activation fee, according to the company.
• The Bike and Tread maker stated that the secondary market is a "significant contributor" to acquiring new members.
• In 14 cities across the country, Trade My Stuff, a startup specializing in used Peloton equipment, provides same or next day delivery.

On Thursday, it was announced that new subscribers who purchased their hardware on the secondary market would be charged a one-time $95 activation fee, as more consumers are opting for lightly used equipment at a lower cost.

As Peloton sees a rise in new members who bought used Bikes or Treads from peer-to-peer markets such as Facebook Marketplace, the used equipment activation fee for subscribers in the U.S. and Canada increases.

In the fiscal fourth quarter that ended on June 30, Peloton reported a 16% year-over-year increase in the number of paid connected fitness subscribers who purchased hardware on the secondary market.

The company stated in a letter to shareholders that they believe a significant portion of these subscribers are incremental and have lower net churn rates compared to rental subscribers.

Christopher Bruzzo, interim co-CEO, stated on a call with analysts that the activation fee will generate incremental revenue and gross profit for us, which will aid in funding our investments to enhance the fitness experience for our members.

Although many Peloton subscribers use the home workout machines regularly, some have compared them to clothes racks due to their underutilization. These individuals purchased the equipment but later canceled their monthly subscription, which is a significant source of revenue for Peloton.

Peloton can increase revenue without any initial investment by attracting budget-conscious members from the secondary market who are willing to pay for a monthly subscription.

Around the world, a million Bikes are gathering dust in homes, providing a potential source of revenue for Trade My Stuff, which sells used Peloton equipment.

He revealed to CNBC that he had previously met with Peloton executives to explore collaboration opportunities, as each time he sold a used piece of equipment, it could result in more than $500 in new revenue for Peloton annually. With the introduction of the new used equipment activation fee, this revenue potential could increase to over $600 for the first year.

"Kimmelfeld stated on CNBC on Thursday that the new activation fee would not deter customers from purchasing secondary equipment, as they can still obtain a bike at a faster and cheaper price on the secondary market, even with the $95 fee."

First-generation Bikes are sold by Trade My Stuff for $499, compared to $1,445 new. The Bike+ is offered by Trade My Stuff for $1,199, compared to $2,495 new. Additionally, Trade My Stuff sells used Treads for $1,999, compared to $2,995 new.

Kimmelfeld's business has been successful in selling used Peloton equipment, with over "a few thousand" bikes sold since its launch. The company offers same or next day delivery in 14 cities across the country, including Los Angeles, Denver, and New York City. Outside of these locations, delivery takes between three to five days. This is in contrast to a new Peloton purchase, which can take significantly longer to deliver.

The activation fee for used Peloton equipment is intended to provide new members with the same exceptional onboarding experience that the company is renowned for, according to the company. Bruzzo stated that individuals who purchase a used Bike or Bike+ are entitled to a virtual custom fitting prior to their first ride, as well as a summary of the bike's previous ride history.

"Bruzzo stated that new members will receive discounts on accessories such as bike shoes, bike mats, and spare parts. The company will continue to focus on this crucial channel and explore ways to enhance the new member experience, including offering early education on the diverse range of fitness modalities and the numerous series and programs provided by instructors to new members."