Liz Coddington: Sure. So — it’s a little bit of an odd question. One thing that is a little different about Q1 versus other quarters is that we are guiding much later in the quarter than we often do. And so our confidence in our guidance range is higher because there’s less of the quarter left to provide guidance to. There wasn’t really a change in the methodology of our guidance. we just added an additional guidance with regard to app subscribers. I mean — I guess the other change would be that we’re guiding to Connected Fitness subscribers, excluding FaaS subscribers and then our app subscribers. But otherwise, there’s really no change to our methodology.
Barry McCarthy: And I think the question for me was how much risk is, do I perceive in the business related to the upside growth in the second half of the year? And the short answer is, not much. I mean, it’s pretty — look, it’s a pretty low bar. And if we can’t deliver against that bar, then what the heck are we doing? So — and at the moment, we’re all consumed with the potential upside and that we haven’t announced it, we’re kind of in process. So at the moment, I’m filled with optimism. Now a bunch of those things fall by the wayside. I’d be saying it in a different tune, but today, I’m feeling pretty good.
Shweta Khajuria: Okay. Thanks, Barry. Thanks, Liz.
Operator: We’ll move for our next question. Our next question comes from Mario Lu with Barclays. Your line is open.
Mario Lu: Great. Thanks for taking the questions. The first one is on the free app. I know it’s only been three months, but any early data points to share with regards to these free users eventually converting to either all access or paid members over time? And then on a separate note, is there an add rev opportunity for the free app similar to Spotify?
Barry McCarthy: Let me do the second part of the question and ask Liz to do the first part. So I’m a little bit familiar with the ad business since I ran it at Spotify. And one of my takeaways, I have two from that experience. One is that advertisers buy reach, which means it requires scale in your business, in order to be a viable player and we don’t have that for a long time. And secondly, it is very resource intensive. It requires a lot of engineers, writing a lot of code with a lot of complexity in order to have the measurement and other tools you need and the automation required at scale to properly sell and account for the ad business. So the only way in which we would be able to participate, I think, is the practical matter would be to outsource it, sort of — a lot of the Netflix model.
And if we did that, I think it would not be the user experience that we would all aspire to have for our members to have. And so, I don’t foresee as a practical matter. Any scenario under which in the foreseeable future, we’re in the ad base. Liz, I think the question was a version.
Liz Coddington: Yes. So the question was about early Data Points, regarding the free app and getting people to convert to paid. So as Barry mentioned, we have had over 900,000 downloads of the app. Over 600,000 of those have been related to users that are new to Peloton. We have about 0.25 (ph) million of monthly active users of the app. So there is certainly opportunity to drive further engagement. We believe that a lot more of these people are earlier in their fitness journeys. And as Barry mentioned, that we have work to do on the app to make it easier for people to get started and drive that engagement. We really do believe that building a free tier base is important for long-term growth. We’re very focused on driving awareness and that’s been really good because we’ve had a large number of downloads.
But a lot of these people are new to Peloton and they haven’t decided yet to upgrade to APP1 or App+. But that’s one of the key things that we’re working on, how to engage them better and get them to convert to a paid membership.
Mario Lu: Great. That’s helpful. And then second question is on fixed cost. You reduced your fixed OpEx items by 25% to 30% year-on-year this quarter. Just curious if there’s any color you can provide in terms of how much further improvements we can expect to see in fiscal ’24? In terms of the fixed cost reductions. Thanks.
Liz Coddington: Yeah. So I’m wondering, I’ll just talk about — I’ll talk about our OpEx kind of more in general. So we aren’t offering any specific targets, but we are going to continue to optimize our fixed cost base over the course of the year. For G&A, we’re going to continue to optimize and reduce costs in areas like we’ve called out staff augmentation, legal spending, customer service. It’s worth calling out that in Q4, we did have a onetime benefit in our legal expenses that we don’t expect to repeat. But on a full year basis, we have line of sight to over $100 million in expense reductions versus fiscal ‘23. For areas like R&D, we expect our R&D expenditures to be similar to FY ‘23 as we continue to invest in our platform.
With a primary focus being on software improvements such as personalization that Barry has mentioned and also improving our app. But I do think it is worth just mentioning very briefly that we are making a change in how we think about our R&D costs. So we mentioned it, it’s in the shareholder letter that we will not be capitalizing any longer a substantial majority of our R&D for internal use software. And so you may see that in the P&L as more of our R&D costs will be expensed rather than capitalized. It’s about roughly estimating about a $10 million impact to Q1 R&D expense. Hopefully, that helps. I did want to mention one last thing. Let me just mention one last thing. Just on sales and marketing, some of our sales and marketing costs, we will be – continue to be reducing our retail store footprint.
And so we will see some of those costs come out from a more of a fixed marketing cost, but we’ll be reinvesting some of those into sales and marketing in other channels that are much more efficient as well.
Operator: Thank you. One moment for our next question. The next question comes from Edward Yruma with Piper Sandler. Your line is open.
