In one year, Peloton has gone from a market cap of almost $50 billion down to approximately $12
billion. At the same time, it has laid off 2800 employees, its founder & CEO stepped down, and
its first factory is no longer being developed. So how did this company go from being the darling
of wall street to fending off angry investors calling for it to be sold?
Join us as we break down Peloton and find out how it got so popular,
what led to its spectacular crash, and what three lessons you can learn from its mistakes.
Just want the lessons? Skip to the “3 Lessons From Peloton” chapter below.
Peloton, the company behind the premium exercise bikes and treadmills with internet-enabled screens
and an app that beams live and on-demand exercise classes into its users’ homes, is the brainchild
of former Barnes & Noble exec John Foley. Bikes start from $1500 to $2500,
its treadmill starts at $2500, and access to classes costs $39-per-month, so it’s
clear Peleton is targeting a premium market. Foley came up with the idea for the company after
noticing he enjoyed instructor-led classes more than exercising on his own. But he often struggled
to attend the ones with his favorite instructors because they were too packed or too expensive.
Instead of seeing a problem, he saw an opportunity to bring this experience home.
In the beginning, growth was steady and by August 2018, Peloton had sold over 400,000 bikes and
attracted $994 million in investments giving it a valuation of more than $4 billion. An impressive
result that was fueled by a secret formula. Peleton by combining high-quality home fitness
equipment with live classes presented by top instructors the company created a cult-like
following, with some superfans going as far as tattooing its logo on their bodies.
It’s even found favor among celebs like Hugh Jackman, Olympic champion sprinter Usain Bolt,
and billionaire Richard Branson. Amidst this hype, Foley took Peloton public
in 2019 at $29 per share, giving it a $7.7 billion valuation, however, shares closed 11% lower at the
end of trading. This poor performance was in part due to its status as a lossmaking company.
At the time, even though revenue had doubled to $915 million over the previous year,
losses had quadrupled to $196 million in the same period. This lossmaking status would be one of the
reasons their stock collapsed in early 2022. But, let’s not get ahead of ourselves.
Before the collapse, Peloton would see a massive upswing in its stock price thanks
to pandemic-fueled growth. With gyms closed, its bikes and treadmills were perfect for people that
were looking for ways to stay active at home. This demand helped Peloton achieve a 172%
surge in sales and more than 1 million people subscribing to its streaming classes in the fourth
quarter of 2020. Everything was looking great for John Foley and his team. However, the pandemic had
a severe impact on their supply chain. The company was struggling to meet demand leading annoyed
customers to vent their frustrations online. As a result, the company invested more than $100
million in solutions aimed at reducing manufacturing and shipping times
and committed $400 million to building a factory in Ohio a year later.
This hype around Peloton helped its stocks rise more than 440% to more than $170 at the beginning
of 2021. But this impressive growth wouldn’t last for long due to several reasons.
First, as the world, and gyms, started reopening in 2021, demand for at-home exercise equipment
dropped. Secondly, saturating a limited market. Most people that wanted a Peloton bike
or treadmill already had bought one and weren’t in the market for another one any time soon.
At the same time, Peloton was facing criticism after it initially rejected a call by the Consumer
Product Safety Commission to recall its Tread+ treadmill after several reported accidents.
Finally, in January 2022 CNBC reported that, according to leaked internal company documents,
Peloton had paused production after the decrease in post-pandemic demand
had left the company with excess treadmills and bikes in their warehouses.
The result was an 80% drop in share price to $24.22, well below the $29 share price of its
stock market debut. This led investors to accuse Foley and the board of mismanagement, calling
for him to be fired and Peloton to be sold. While rumored, potential acquirers include Amazon,
Nike, and Apple, which helped Peloton’s stock recover 30% of its value, its most recent moves
seem to indicate that it is still trying to remain independent.
In an effort to save at least $800 million in costs, the company laid off 2800 employees
including 20% of its corporate positions. Foley also stepped down as CEO taking on
the role of executive chair instead. His replacement is Barry McCarthy, the former
chief financial officer of Spotify and Netflix. Other efforts to minimize costs include reducing
the number of warehouses it operates and working with more third-party providers for deliveries.
Finally, it also announced that it is winding down the development of its Ohio factory.
Peloton’s rapid rise and fall has three great lessons for entrepreneurs.
First, always under promise and over deliver, not the other way around.
While Peleton’s CEO had no control over supply chain issues during the pandemic,
he did have control over how they managed customers' expectations.
While customers were promised delivery times of seven weeks, many received a simple notification
stating that their shipment was delayed for another seven weeks with no other explanation.
For customers that paid in the thousands for their product, this felt like a slap in the face.
The result was a flood of unhappy customers posting online. Foley missed an opportunity
to give consumers realistic delivery dates and delight them with an early delivery when
the supply chain issues improved. Second, hope for the best, but plan
for the worst. While Foley couldn’t have predicted the pandemic and its effect on Peloton, he assumed
this growth trend would continue. This left the company without a strong backup plan in place,
which resulted to be a recipe for failure. Peloton’s products target a niche
market, and thanks to the pandemic, most of their target audience had bought their bike already.
Despite the world reopening in 2021 and demand for its products decreasing, the company continued
with its efforts to expand manufacturing, leading to unsold products at warehouses.
Finally, be like water. For a company to be successful, it needs to rapidly adapt to changing
circumstances. Too often Peleton would be too slow to react to internal issues. For example, rather
than immediately recalling its treadmill Peloton pushed back, resulting in bad publicity.
Peloton underestimated the pandemic’s impact on its growth, leading it to overinvest in products
with waning demand. The result was a dramatic decline in stock price that triggered immediate
action from the board. The first step was laying off 2800 employees in order to reduce costs
and appointing a new CEO in an attempt to save the company in the eyes of investors.
The lessons we learned from this story are universal.
Although we analyzed Peleton, every business can learn something and relate the learning
to their own situation. If you liked this video, please let me know in the comments.
That’s it for another business breakdown. See you, bye.