Inside a Year at Peloton: From Pandemic Winner to HBO Punchline

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Management miscalculations and reversals pose complex challenges due to COVID-19

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Less than a year later, Peloton slashed the price of its bikes. It later warned investors that annual sales could be 20% lower than the company’s estimates, citing Americans’ return to normalcy as COVID-19 cases plummet. The company implemented the hiring freeze amid mounting losses.

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Peloton’s rise with a market value of $50 billion and the decline of a company worth less than $15 billion has been marked by miscalculations and reversals by Chief Executive John Foley and his top lieutenants. The move offsets the opportunities and complex challenges caused by the pandemic, while skyrocketing consumer demand in the global supply-chain quagmire.

“The management idea was there was a paradigm shift,” said Aaron Kessler of Raymond James, “with most people continuing to favor home workouts.” He said the company’s consumer surveys showed the opposite, and in February, it downgraded Peloton stock on the belief that the company’s growth projections were too rosy. “It was a false narrative,” he said. “People wanted to return to the gym.”

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Peloton leaders admitted that they underestimated the demand at times. In early 2021, the company faced criticism from consumer advocates and US safety regulators after it refused to recall its Trade+ treadmills before recalling the machine. Meanwhile, the company said it is making deals to deter rivals, which were almost non-existent two years ago.

Peloton said in statements that it believes the company has the right amount of capacity and is taking “significant corrective action” to improve profitability in future quarters. “Our long-standing thesis of fitness at home remains unchanged,” the company said. Mr Foley declined requests for interview or comment.

“The growth rate that people are expecting from this business is unachievable,” said UBS analyst Arpin Kocharian. In May the firm put a rare and controversial sell rating on Peloton stock, arguing that Peloton’s forecast and stock price were reliant on unrealistic growth and earnings estimates by the company. She said she believes Peloton’s model of adding fitness equipment, virtual classes and consumer financing is a sound one.

Peloton has more than 2.5 million paid customers, more than triple its base before the pandemic, many of whom are also investors. Peloton has launched new products and continues to grow beyond US subscribers to Peloton’s online classes. Peloton generated more than $4 billion in annual revenue for the fiscal year ended June 30, compared to $915 million two years ago.

“So far I have had positive experiences with the company, which has strengthened my confidence in the company’s products,” said Dr. Mark Anthony, owner of Peloton Bikes and Treadmills and a physician who invested in the company. He said that so far he has lost money on investments but believes the company will grow in the long run. “They offer a great product and I continue to buy their stock.”

In the near term, Peloton could benefit from a surge in Covid-19 cases as the Omicron edition is prompting cities and states to implement mask advisories and vaccine mandates for indoor activities, including gyms.

Peloton’s stock has lost more than three-quarters of its value from its December 2020 highs, eroding most of its pandemic-era gains. It is now trading around $37, which is very close to the $171 high of its initial public issue price of $29.

In spring 2020, as the coronavirus engulfs the US, Peloton joins companies like Zoom Video Communications Inc.,

Netflix Inc.

and clorox Co.

, which enjoyed explosive growth, with much of the US shut down.

At the time, Peloton was growing, though not profitable. Co-founded by Mr. Foley, a former Barnes & Noble Inc. executive, the company began selling bikes in 2014 and opened its first studio in Manhattan with instructors leading classes that were also built in members’ homes. It went public in September 2019.

Then the pandemic hit and demand exploded. Peloton also keeps bikes and treadmills in stock while managing its live studios and more than 100 retail locations in North America and Europe.

Executives assured Wall Street that the team was working.

During the May 2020 quarterly earnings call, one analyst predicted that Peloton would run low on inventory over the summer, based on company data.

Finance chief Jill Woodworth responded that inventory was not a good predictor of supply. “We have a lot of confidence that we can deliver from a supply-chain standpoint,” she said.

Soon customers were complaining about long wait times and missed deliveries, even as Peloton continued to advertise looking for new orders.

In November 2020, Mr Foley apologized. “It pains us that we are performing poorly,” he said. A few months later, the company said it would push back the launch of a new treadmill, double the size of customer-service operations and begin shipping exercise equipment by air to reduce delays.

Logjams at ports in Asia, where Peloton made most of its products, and a shortage of shipping containers and truck drivers, were jamming supply-chain operations around the world.

Peloton paid $420 million to acquire Precor Inc., one of the largest global manufacturers of fitness equipment, and announced plans to build a $400 million factory in Ohio by early 2021.

increased income from the sale of equipment and membership of its classes; The company posted its first profit and delivered two more profitable quarters.

By the summer of 2021, COVID-19 vaccines were available and Americans began to return to gyms, offices, and travel. Online marketplaces were filled with people selling exercise equipment, including Peloton bikes.

In August 2021, Peloton reduced the price of its original stationary bike by 20%. Mr Foley said the price cut does not reflect weak sales and he remains confident in the company’s annual forecast. Instead, he said, the move was aimed at curbing competition and “democratizing access to this great fitness.”

The company canceled its annual forecast three months later. Peloton reported its smallest quarterly profit in subscriber growth since becoming a public company, and said fewer people are joining online workouts.

The company’s cash reserves at the end of September were 66% lower than the position at the end of March. Ms. Woodworth, CFO, said Peloton doesn’t need much cash.

Twelve days later, Peloton announced a $1 billion stock offering. “We didn’t need to raise the capital, but we chose to,” a spokesperson for Peloton said last week. She said the money would go to potential future expansions or acquisitions.

In December, a marketing plug backfired when Peloton bikes were blamed for the death of a character in HBO’s “Sex and the City” reboot. Peloton stated that he did not know of the plot when he agreed to feature one of his trainers and his bike in the episode.

The company tried to capitalize on an online ad featuring actor Chris Noth and a Peloton instructor, showing the pair are ready for another spin on the bike. But Peloton quickly removed the ad when Mr Noth was accused of sexual harassment. Mr Noth has denied the allegations.

“We had moments when our stars shone bright,” Mr Foley said in May 2021, as the company announced it would be recalling its treadmills. “And conditions like now, that we feel like we have some work to do to get back on the right side of the line.”

Write Sharon Terlep at [email protected]

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