So not much on the product side, a lot of innovation with respect to the business model, different go-to-market strategies, 3P and FaaS, being to note were the examples. I think what you’re going to see in the next two years is a significant product innovation and which I’m very excited about because I think we have a real shot at changing in a meaningful way at the growth trajectory of the business.
Operator: And one moment for our next question. And that will come from the line of Aneesha Sherman with Bernstein. Your line is open.
Aneesha Sherman: Great. Thank you. Barry, you’ve talked about the seasonality of the business with more growth clustered in the winter months. Can you square that with your view of flat growth in Q3, which is a winter quarter, especially in the light of all the successful initiatives you’ve highlighted in your letter? And then on the other side of this, you’re lapping a weak Q4 this year, and you expect positive growth. Are you comfortable with having fully lapped the seasonality effect at that point. So from Q4 onward, you’re basically like-for-like on seasonality?
Barry McCarthy: Well, our view on — maybe we’ve communicated poorly, but our view on seasonality hasn’t changed, actually. It is Q2, the holiday season, which drives 40 plus percent of the annual volume. And there’s not much seasonality in the rest of the year, slows in the summer months a little bit. But that would be the only other qualifier I would mention.
Liz Coddington: And I also think it depends on what you’re looking at. If you’re looking at subscribers, we do expect to grow subscribers in Q3. So both on the Connected Fitness side as well as the app side.
Barry McCarthy: Now we did deal with the seat post recall beginning in May of last year, and that certainly caused a lot of softness for the B1 Bike. But we’ve been living with that softness for B1 Bike ever since. So it’s not like consumers suddenly rediscovered a love for that product in the aftermath. We see significantly different trajectory for unit growth for Bike+, by the way, but.
Liz Coddington: And also our Treadmill products, we’re seeing growth there.
Barry McCarthy: Sorry, I didn’t mean to imply that wasn’t the case. I just meant to say that if you’re expecting sort of resurgence in demand post the seat post recall for B1 Bike that really hasn’t — that hasn’t happened.
Aneesha Sherman: And if I can ask a quick follow-up. Do you believe at this point, you’re kind of huge inflection in growth your 2020, 2021 cohorts. Have those COVID users now sort of normalized in terms of churn and your churn level is now back to normal across cohorts, including the COVID cohort?
Liz Coddington: Yes. I would assume that’s the case. Yes.
Barry McCarthy: I think there was a short thesis that maybe they came in with COVID and they’re all going to fly out the door afterwards, and that just — that’s just flat wrong.
Liz Coddington: If you look at our churn profile, our churn rates and you look at them on a cohorted basis, like a 12-month churn rate by cohort, it’s not coming down substantially in any way. The only factors that are influenced just to add one more comment, the only factors that do influence our churn are the mix into the Bike rental, which we have talked about in prior quarters, where our Bike rental subscriptions do have a higher churn rate than our regular All-Access Members, although we are working to bring that down, and it did improve quarter-over-quarter in Q2, which is great. And then also, I think we’ve talked about in prior calls, the secondary market, which is the people who buy a Bike not through us, but through someone else like from a marketplace of some sort that those do have a slightly higher churn than people who buy directly from us.
And so as that increases, that will put some pressure on our churn as well. But our underlying churn for our All-Access Members that come through — is pretty stable.
Operator: Thank you. One moment for our next question. Our next question will come from the line of Edward Yruma with Piper Sandler. Your line is open.
Edward Yruma: Hey, guys. Two quick ones from me. I guess, first, Barry, a bigger picture question. You’ve been at this for some time and certainly had some success in turning the business around. But I guess as you step back and think about Connected Fitness and growing it. It seems like you had most success we’re able to lower the cost of ownership. So I’m trying to understand it, it is further growth predicated on continuing to drive down cost of ownership to things like rental? Or is it still a marketing issue. And then as a follow-up, just so I’m clear on the POP sale, was that aligned with the impairments you’ve taken? And are there further impairments that are necessary when you close that? Thank you.
Barry McCarthy: Let me acknowledge that you’re quite right that the go-to-market innovations that have resulted in lower cost of entry like FaaS like refurb have been enormously successful. I mean FaaS is now a $100 million run rate business from zero and we grew not quite 300% year-over-year in the quarter. And we see very fast growth in the secondary market north of 40%. So value matters. Now lots of ways to deliver value. And one of the ways to do it, which we had great success with at Spotify and Netflix was by investing in the product and the user experience. And I think there’s a tremendous opportunity for us going forward to lean into the performance aspect of the market with premium priced products in order to drive new growth for us, meaningful growth.
