It’s been a long time since a publicly traded hardware firm had such a drastic price drop as Peloton. As a previous hardware founder and investor, I can’t help but sympathize with the company’s inexorable downward spiral. Even in an era when doing out at home became a far better notion than sharing equipment at the nearby gym, Peloton hasn’t been able to catch a break. The company’s shares dropped 84 percent in value in just a few months after reaching a 52-week high of $155.52 per share. Given that it was once a darling of Wall Street and customers alike, it’s nothing short of astounding.
While it’s difficult to pinpoint a single point of failure, the company’s run of bad luck has been so remarkable that it’s not too soon to wonder if massive mismanagement is at work, as some investors have already done. So far, the story has gone as follows: Peloton users’ private account data was leaked, GPS coordinates were accidentally embedded in users’ profile pictures, products were recalled following the tragic death of a 6-year-old, and two different TV dramas showed characters getting hurt while using a Peloton, followed by a textbook example of bungled crisis management.
It helps to fuel the narrative of managerial ineptitude if you plan to build a $400 million factory, get a quarter of the way done, and then stop with nothing to show for it. The company’s journey to the public market has been anything but smooth. Peloton filed for an IPO in 2019, with a target price range of $26-$29 per share and a $1.2 billion valuation. It eventually went public at $29 a share, but it struggled to compete with other hardware IPOs at the time.
Peloton had developed a cult following even before we were all put on lockdown, but the epidemic aided in the company’s stratospheric growth in valuation and investor adoration. Analysts appeared to read the writing on the wall as its stock price rose and subscriptions skyrocketed, gradually downgrading it from “buy” to “hold” before dropping their recommendation to a “sell.” During its time in the spotlight, the corporation looks to have failed to improve its long-term financial health. Peloton announced this week that veteran CEO John Foley will be leaving away. Barry McCarthy, the former CFO of Spotify, will take over as CEO.
McCarthy served as Netflix’s CFO from 1999 to 2010, at the tail end of the DVD era before the firm transformed into a streaming behemoth. With board experience at Pandora, Eventbrite, Wealthfront, Spotify, and Instacart on his portfolio, he’s in for a wild ride as he attempts to right the ship at Peloton. One thing is certain: Peloton requires a massive turnaround in order to save its bacon. McCarthy must pool his available resources to create a new direction for the morale-wracked corporation, aided by a McKinsey team to explore what can be saved. So, what went wrong? Let’s look at it more closely.
Peloton had a lot of bad press in 2019 – and rightfully so. A tone-deaf and misogynistic TV commercial, which aired at the same time as the company’s churn rate doubled, proved to be a turning point. That’s not a good look in the SaaS world, where client retention is one of the most critical metrics. When vaccines became available at the end of 2020, fitness stocks stopped falling, and a few companies that had seen their fortunes rise during the epidemic were left questioning their heads.
Zoom and Peloton both took a battering, and while it’s easy to make a case for remote meetings, an exercise cycle that costs nearly $2,000 and comes with a hefty subscription isn’t nearly as necessary. “Companies are worth the present value of their future cash flows, so when the latter side of the equation changes, the former does as well,” TechCrunch’s Alex Wilhelm speculated in late 2020. Peloton introduced $13-per-month subscription apps on Android TV and (much later) Apple TV in 2020, ostensibly to cash in on the widespread home workout boom for individuals who didn’t own its hardware, and speculations began to circulate that it will provide a lower-end treadmill and a higher-end bike. Both were released, with a $2,495 price tag on each.