Operator: One more before our next question. Our next question comes from Justin Post with Bank of America. Your line is open.
Justin Post: Great. Thanks, a couple. Barry, in the letter and on the call already, you’ve mentioned some growth initiatives that you’re excited about. I think we’ve already talked about fitness as a service and some of the retail initiatives anything new or something you would call out that you’re really enthusiastic about for the year? And then second, on churn. Can you help us quantify how much of the 80,000 I guess you’d say, inactivations at the end of the quarter, maybe related to the seat posts and as people receive them, do they get back on? Are you seeing any positive progress this quarter as people receive the seats? Thank you.
Barry McCarthy: I’ll take the first part, and then I’ll ask Liz to take the churn part of the question. With respect to growth initiatives, Justin, we had articulated a year and half ago, good, better, best strategy to make the service increasingly accessible to new users at the reintroduction of app was a component of that strategy. You mentioned fitness as a service. We started that a year ago with 50,000 subs, about $45 million in revenue. I think we’ll grow it by more than 70% on a year-over-year basis if the current trends continue. Churn was up slightly in the quarter, but I think that was related to the seat post [indiscernible] and it’s likely to come back down. Certified pre-owned has worked extremely well for us. And we’re seeing good momentum in that side of the business as well.
So enormously excited about those initiatives. In the current year, International will be a growth opportunity for us. It was not this past year because this past year, the objective was to reduce the operating losses of that business, which we did to the tune of about $40 million. But you’ll see us leaning aggressively into growth in existing markets like Germany, like Canada, like the UK with new product launches and co-branded partnerships, like, we did with Liverpool by way of example. And then you’ll see us in the U.S. by way growth initiatives, replicating that co-branding experience. Components of those deals will be, I think, have a couple of common characteristics. They will be multiyear, they’ll be global, they’ll be exclusive. There will be collaboration on content creation and there will be co-marketing and social media components.
And if we execute them well, we will benefit enormously from the association of our brand with their brand. And our members will benefit enormously from the content creation that happens as a result of those deals. When all of them combined, I think, will contribute to an acceleration in our growth.
Liz Coddington: Okay. I’ll go ahead and take the question on churn. So when as we mentioned last quarter, in Q4, we did expect to see a model — a modest sequential increase in our churn and that’s consistent with the seasonal trends that we tend to see over the summer. If you look at our legacy churn metric, that 1.4% that we had for Q4 was about 10 basis points roughly higher than we expected. We expected it to be about 1.3%. And then what we did see in the — related to the seat post recall was that we did see our churn rate increase a bit in May and June relative to April. And that’s atypical seasonality for us. So we do believe that, that was related to the seat post recall. Now when you’re referring to the 80,000, you’re referring to the POS subscribers.
And those folks are now in our new metric, considered of churn and you can see that uptick from around the 50,000 to 55,000 range that we’ve had more typically to about 80,000 and that took us to a 1.8% churn rate when we consider those POS subscribers as churn. We did expect POS subscribers to go up a bit seasonally in Q4 because of just the seasonality and people at the time when more people pause their membership. But the outsized increase, it’s hard to quantify exactly, we do believe it’s related to the seat post recall. Now in Q1, I think it’s really important because we’re guiding to this new metric, that, we kind of anchor on that 1.8% that we shared in the letter. We do expect churn to come down substantially from that 1.8% because we don’t expect to see an increase in POS subscribers like we did in Q4.
We likely will see some level of decrease, but we’re not really forecasting a huge decrease in pause. For part of the reason that subscribers can pause for up to three months, people started pausing in kind of the June — end of May, June time frame. And we also know that some people are still awaiting their seat post. They should all receive them by the end of September. But we don’t know that people will immediately un-pause the moment that they get their seat post. But it is really important to understand that just by virtue of not having that POS subscriber base increase, our churn should come down to more like the 1.4% range and perhaps even a little bit better than that. We’ll also expect to see a little bit of benefit from seasonality as well.
Hopefully that clarifies.
Justin Post: Thank you.
Operator: One moment before our next question. Our next question comes from Eric Sheridan with Goldman Sachs. Your line is open.
Eric Sheridan: Thanks so much for taking the question. I wonder, if I could get some of your more updated thoughts on the Digital app strategy. What are some of your key learnings as you continue to position that strategy and how should we be thinking about some of the investments you want to make to sort of drive growth against your longer-term goals in terms of building the subscriber base around the Digital app? Thanks.
Barry McCarthy: Well, look, we’ve had to date about slightly in excess of 900,000 people download the app and about 600,000 of those roughly are new to the platform. So we need to continue to lean into creating awareness and driving trial. With respect to the paid app, we’re seeing a higher percentage of App+ users than we had anticipated, which is a good thing. How do we continue to find success with the app? We need to continue to allocate marketing spending towards it. And there’s this constant tension, do we spend it on Connected Fitness units or do we allocate to a larger portion of the slices of the pie to spending in the app and see how the need of the business develop as the year unfolds relative to our plan. Secondly, we need to ensure that the app interface continues to evolve in ways that make it compelling and easy to access and engaging for members, right?
