• Carlton Mac

PELOTON; THE 46 BILLION DOLLAR BUBBLE THAT POPPED

Why Peloton hasn't been doing well

Peloton stock market crash

When the pandemic hit, companies either blew up or they got destroyed. Companies that benefited from people staying at home like Zoom, Google, Amazon and Facebook went to the moon. Meanwhile restaurants, airlines, cruise lines and hotels went into the abyss and many of them even filed for bankruptcy one of the biggest beneficiaries of the movement toward stay at home products was an exercise equipment company called the Peloton. Almost overnight they became iconic for making high end exercise bikes and treadmills and their stock boomed almost 10x from the pandemic lows. But ever since the start of 2021 Peloton hasn't been doing so well, they've had to recall a couple of products, face a few PR nightmares, slash the prices of their products by hundreds of dollars, watch their products over-saturate second-hand market, lose their CEO and burn more money than ever before. As you would guess the stock market hasn't been very kind to this lackluster performance and the stock has sold off 86% on the peak. So here is the rise and fall of one of the biggest fads in the fitness industry.


Taking a look back the story of Peloton circles back to a man named John Foley. Not much is known about John's background other than the fact that he seems like a traditional business man who climbed the corporate ladder. He got prestigious degrees in engineering and business from Georgia tech and Harvard respectively and two decades of work he was able to become the president of e-commerce at Barnes & Noble. At this point most people would probably just try to work up to the c-suite work for another 10 - 20 years and then retire comfortably but it looks like John had an entrepreneur urge that he never tended to. So, in 2012 at age 40, John made the fateful decision to quit his job and give business a shot. He didn't want to do it alone though so he convinced a bunch of executives and friends to take a plunge with him.

This included Graham Stanton, Hisao Kushi, Tom Cortese and Yony Feng and given all of their connections and personal wealth itself it wasn't difficult to raise money just, one month after starting the company they were able to raise $400 thousand dollars and by the end of the first year able to raise another 3.5 million dollars since then Peloton has managed to raise over 1 billion dollars from the private markets. But anyway, as their first few millions they start developing their flagship product which is the exercise bike, the idea of what to allow people to enjoy a high-end cycling class from the comfort of their homes, each bike comes with a massive screen that is capable of live streaming workout from dozens of their personal trainers. The product wasn't anything game-changing per say but it provided a unique twist on a classic product and usually if that's all you need. People often get stuck on trying to find the next big idea when the best idea is actually just noticeably improved by something that already exists. Peloton turned to Kickstarter to launch their first bike with the goal of Raising $250,000. They were only able to garner a total of 297 backers but given that cost over 1000 dollars they were able to beat their goal and raise $307,000. Peloton would turn around and release their back to the general public in 2014 and with that Peloton was in business.

Over the next few years Peloton grew a strong core base of hardcore users. Initially appealed to real biking enthusiasts who wanted a solid alternative to biking outside or attending a real cycling class, but with the time the demographic which is closer and closer to everyday people. In May of 2018 Peloton would attempt to expanded audience by targeting enthusiast runners as well with the launch of the Peloton Tread+ and it carried and even more bougie and thereby starting at $4300 dollars and it should also be noted that if you want access to all Peloton classes and livestreams you have to get there all access subscription which cost $39 per month or $450 per year itself. For those prices I'm pretty sure it would be way cheaper to get a gym membership and just attend cycling classes in person if a gym membership cost $30 per month it would take nearly 12 years to pay the $4300 dollars that would cost to get the Tread+.

Despite these crazy prices for people who valued the livestream classes and their convenience, there was no better at home alternative also with time the high price-tag starter become more of an advantage than a hindrance similar to other high-end brands like Apple and Louis Vuitton, Peloton high prices give them exclusivity and turn their products into status symbols. If you were able to spend thousands on an exercise bike and hundreds on a subscription every year you clearly had money. In my opinion if you don't know what Peloton means you probably shouldn't be getting their bikes it and this is how it mostly worked till 2020 but once the pandemic hit a large portion of white-collar workers decided that it was a great idea to buy some high-end equipment to start exercising on and over the next few quarters, Peloton revenue number if it hit new all-time highs and they would even post a few profitable quarters but while Peloton was doing better than ever before financially they were concurrently dealing with this a slew of problems in the background.


One aspect that most if not all YouTubers are extremely careful of is avoiding copyrighted music. Even just a couple of seconds of music can get an entire video demonetized. Unfortunately, it looks Peloton didn't have any YouTubers on the design team because they filled their workout videos with copyright music and in March 2019 the National Music Publishers Association hit Peloton with a 150-million-dollar lawsuit. Peloton instantly responded by removing the copyrighted music from all the courses and even removing some courses that depended on the music. Most Peloton users weren't exactly happy with this a given that copyrighted music is generally way better than non-copyrighted music.


But Peloton customers weren't the only ones that were unhappy in September of 2019 the Music Association would double the allegations on Peloton claiming a total of $300 million dollars. Peloton did end up settling for an undisclosed amount that was slightly lower than $300 million dollars but I doubt that this was a very good experience for Peloton. Shortly after they would find themselves in yet another controversy with a tv commercial called “The Gift That Gives Back” the plot of the commercial is a husband buying his wife a Peloton bike and a wife becoming a lot more fit and athletic over the next year most people would just dismiss their commercial as another fitness ad and not think much about it. But a select group of people felt that Peloton was promoting body shaming and that the plot of a commercial implies that the husband was dissatisfied with the wife’s physical appearance. Honestly, it's just a traditional fitness commercial, but the like to dislike ratio shows how divided people were on the advertisement. Despite all these controversies, Peloton sales continue to rise to the start of the pandemic but this led to its own issues Peloton couldn't keep up with a massive influx of new orders and many customers had waiting times that stretched several months this led many customers reconsidering their orders and canceling them a few months over the wait. While these growing pains were likely annoying to deal with, it soon became clear that Peloton had much more deep-rooted problems.

The truth is that a significant portion of the people who went ahead and bought a Peloton didn't actually stick to using the peloton, that thing as most of these guys were not enthusiast bikers or runners, they were actually a type of people who got a gym membership as a New Year's resolution and then only used it five times throughout the entirety year and buying a Peloton was basically, they're Covid resolution. Many of them felt that by spending a significant amount of money and having my training classes they will be in work compared to work out and while this may have worked for a few months or even several months as people begin to return to their normal lives their fitness life returns to being non-existent.


Most of these guys kept there Peloton around for a few more months but eventually they decide to sell them on eBay and Craigslist leading to the site being flooded with Peloton listings, only did these listings driving traffic away from Peloton official website but it's a pretty strong signal that everyday people who bought a Peloton didn't find it that valuable, this isn't to say that Peloton doesn't make great products because their bikes and treadmills are truly top-of-the-line these buyers were simply not part of the target demographic and they left the scene, Peloton’s revenue started to stagnate and decline. As Peloton started to fall out of favor almost everyday consumers, people and companies’ starter to poke fun at Peloton. Ryan Reynolds for example hired the actress that played the wife in the peloton commercial to star in a gin commercial called “The Gift That Doesn't Give Back” similarly just a few months ago HBO aired an episode in which a character called Mr. Big suffers from a heart attack and dies in a Peloton. Peloton shares would fall 11.3% the day after the episode aired on TV. Clearly the company was suffering from a fleeting customer base and a shifting customer image. But things were going from bad to worse in a short time.


The nail in the coffin for Peloton came in March 2021 when a video was released of a child being sucked into the back of a peloton treadmill and died. Following the story, dozens of reports suggesting the adults, children and pets were injured due to Peloton products. Honestly I'm not sure why I put on receive so much heat when a lot of the fault is shared by the uses of their products, nevertheless Peloton implement a slew of software-based safety features with the next month but this wasn't enough to appease all the criticism they were receiving from the media and in May of 2021 Peloton would finally give in and issue a recall for their Tread and Tread+ treadmills which is valid till November of 2022 and Peloton has been losing hundreds of million per quarter ever since. Many suspect that a lot of the returns are just people cashing in on an impulse purchase as opposed to people returning the treadmills to legitimate safety concerns. I guess it was just this customer lucky day given all this negative PR and the oversaturated second-hand market, Peloton was forced to slash prices to continue to appeal to customers which has just made it even harder to turn a profit.


As losses continue to pile up, the peloton has been forced to make harder and harder decisions. One of these decisions came in early February when Peloton went ahead and reduced the workforce by 2800; this was around the same time that John Foley resigned from the company and was replaced by Barry McCarthy. so far John has lost his position as CEO and his status as a billionaire the only question left is will John also lose his company?

Looking forward, Peloton is definitely in a terrible position right now, many think it's unlikely that they will file for bankruptcy and completely shut down despite all the ups and downs peloton has been able to grow a strong base of power users that wouldn't use anything else and just maintaining this customer base could be quite lucrative for Peloton given the higher subscription fees. With that being said though the next few quarters don't look that great as it is unlikely that Peloton can really start to build positive momentum again until the recall period is over. even after the recall is over, it's unlikely that Peloton will ever enjoy the same amount of interest and excitement they enjoyed at the peak of the pandemic but over several years it's possible that they're able to build up a large enough base of enthusiasts that are able to pull in more revenue and profit than ever before but we'll just have to wait and see.




6 views0 comments