Within a Year at Peloton: From Pandemic Winner to HBO Punchline
HBO’s “Sex and the City” reboot ends tumultuous year for Peloton Interactive Inc.,
which saw its market value plummet as company executives struggled to gauge demand for its web-connected bikes.
Before 2021, Peloton was racing to follow the lead. Both earnings and the stock price were skyrocketing, and executives told analysts they had not considered the possibility the company could end up with a glut of bikes if demand fueled by the pandemic waned.
Less than a year later, Peloton reduced the price of its bikes. He then warned investors that annual sales could be 20% lower than the company’s projections, citing Americans returning to normal as cases of Covid-19 decline. The company has implemented a hiring freeze amid growing losses.
Peloton’s rise into a juggernaut with a market value of $ 50 billion and decline into a company worth less than $ 15 billion have been marked by miscalculations and reversals on the part of the Director General John Foley and his principal lieutenants. The measures offset aggravated opportunities and challenges caused by the pandemic, from skyrocketing consumer demand to a global supply chain quagmire.
“The management perspective was that there was a paradigm shift,” in which most people would continue to favor home workouts once the pandemic subsides, said Aaron Kessler of Raymond James. He said the company’s consumer surveys showed the opposite, and in February it downgraded Peloton’s rating, saying the company’s growth projections were too optimistic. “It was a false story,” he said. “People wanted to go back to the gym. “
Peloton leaders acknowledged that they had sometimes overestimated and underestimated demand. In early 2021, the company came under fire from consumer advocates and US safety regulators after refusing to recall its Tread + treadmill before subsequently recalling the machine. The company, meanwhile, said it was rolling out deals to fend off rivals, which were almost non-existent two years ago.
Peloton has said in statements that it believes the company has the right capacity and is taking “significant corrective action” to improve profitability in the coming quarters. “Our long-term thesis on home fitness remains unchanged,” the company said. Mr. Foley declined requests for an interview or comment.
“The rate of growth that people expect from this business is simply unattainable,” said Arpine Kocharyan, analyst at UBS. In May, the company gave Peloton stock a rare and controversial sell rating, arguing that Peloton’s forecast and stock price depended on unrealistic growth and profit projections for the company. She said she continued to believe Peloton’s model of combining fitness equipment, virtual classes and consumer funding was solid.
Peloton has more than 2.5 million paying subscribers, more than triple its base before the pandemic, many of whom are also investors. Peloton rolled out new products and expanded beyond the United States. Subscribers continue to flow to Peloton’s online courses. Peloton generated more than $ 4 billion in annual revenue for the fiscal year ended June 30, up from $ 915 million two years earlier.
“I have had positive experiences with the company so far which has boosted my confidence in the company’s products,” said Dr. Mark Anthony, a physician who owns a Peloton bicycle and treadmill. and invests in the business. He has said so far that he has lost money on the investment, but believes the business will grow in the long term. “They have a fantastic product and I keep buying their stock.”
In the short term, Peloton could benefit from an increase in Covid-19 cases due to the Omicron variant which prompts cities and states to implement mask advisories and vaccination warrants for indoor activities, including gymnasiums.
Peloton’s stock has lost more than three-quarters of its value from a December 2020 high, wiping out most of its pandemic-era gains. It is now trading around $ 37, much closer to its initial public offering price of $ 29 than its high of $ 171.
In the spring of 2020, as the coronavirus hit the United States, Peloton joined companies such as Zoom Video Communications Inc.,
and Clorox Co.
, which has seen explosive growth with much of America locked down.
At this point, Peloton was growing but not profitable. Co-founded by Mr. Foley, a former executive at Barnes & Noble Inc., the company began selling bikes in 2014 and opened its first studio in Manhattan where instructors conducted classes that were also broadcast in members’ homes. It went public in September 2019.
Then the pandemic hit and demand exploded. Peloton juggled storing bicycles and treadmills while managing its studios and over 100 outlets across North America and Europe.
Executives have assured Wall Street that the team is keeping pace.
In a May 2020 quarterly earnings call, an analyst predicted Peloton would run out of inventory over the summer, based on company data.
CFO Jill Woodworth responded that stocks were not a good indicator of supply. “We are very confident that we can deliver from a supply chain perspective,” she said.
Soon, customers complained about long wait times and missed deliveries, even as Peloton continued to advertise in search of new orders.
In November 2020, Mr. Foley apologized. “It hurts us that we are underperforming,” he said. A few months later, the company announced that it would delay the launch of a new treadmill, double the size of customer service operations, and start shipping exercise equipment by air to reduce delays.
Congestion at ports in Asia, where Peloton made most of its products, and a shortage of shipping containers and truck drivers, were blocking supply chain operations around the world.
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Peloton paid $ 420 million to acquire Precor Inc., one of the world’s largest manufacturers of fitness equipment, and announced plans in early 2021 to build a $ 400 million plant in Ohio.
Income from equipment sales and class memberships soared; the company made its first profit and had two more profitable quarters.
In the summer of 2021, Covid-19 vaccines were available and Americans began to return to gyms, offices and travel. The online marketplaces were filled with people selling exercise equipment, including Peloton bikes.
In August 2021, Peloton lowered the price of its original stationary bike by 20%. Mr Foley said the drop in prices did not reflect weaker sales and he remained confident in the company’s annual forecast. On the contrary, he said, the move was aimed at avoiding competition and “democratizing access to this excellent physical condition.”
The company canceled its annual forecast three months later. Peloton announced its lowest quarterly subscriber growth gain since going public and said fewer people are joining workouts online.
The company’s cash reserves were down 66% at the end of September compared to its position at the end of March. Ms Woodworth, the chief financial officer, said Peloton didn’t need more money.
Twelve days later, Peloton announced a billion dollar share offering. “We didn’t need to raise capital, we chose to do it instead,” a Peloton spokeswoman said last week. The money will go to future expansions or potential acquisitions, she said.
In December, a marketing mistake backfired when a Peloton Bike was accused of the death of a character in HBO’s “Sex and the City” reboot. Peloton said he didn’t know the plot when he agreed to have one of his instructors and his bike appear in the episode.
The company tried to capitalize with an online ad featuring actor Chris Noth and instructor Peloton, showing the pair ready for another ride on the bike. But Peloton deleted the ad shortly after when Mr Noth was charged with sexual assault. Mr. Noth has denied the allegations.
“We have had times when our stars have shone,” Mr. Foley said in May 2021, as the company announced it would recall its treadmills. “And situations like right now, where we feel like we have work to do to get back to the right side of the line.”
Write to Sharon Terlep at [email protected]
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