INTRO: 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 towards stay-at-home products was an exercise equipment company called Peleton.
Basically 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 has
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 oversaturate 2nd hand
markets, 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% from the peak. So, here’s the rise and fall of one of the biggest fads in the fitness industry.
BOUGIE BIKING:
Taking a look back, the story of Peloton circles back to a man named John Foley. We don’t know too
much about John’s background other than the fact that he seems like a traditional businessman who
climbed the corporate ladder. He got prestigious degrees in engineering and business from Georgia
Tech and Harvard respectively. And through 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 entrepreneurial urge that he had 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 his executive friends to take the 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 $400,000, and by the end of their first year,
they were able to raise another $3.5 million. Since then, Peloton has managed to raise over $1
billion from the private markets. But anyway, with their first few millions, they started
developing their flagship product which is their exercise bike. The idea was to allow people to
enjoy a high-end cycling class from the comfort of their homes. Each bike comes with a massive screen
that’s capable of live streaming workouts from dozens of their personal trainers. The product
wasn’t anything game-changing per se, but it provided a unique twist to a classic product,
and usually, that’s all you need. People often get stuck up with trying to find the next big idea
when the best idea is actually just to noticeably improve something that already exists. Anyway,
Peloton turned to Kickstarter to launch their first bike with a goal of raising $250,000.
They were only able to garner a total of 297 backers, but given that each bike cost over a
$1000, they were able to beat their goal and raise $307,000. Peloton would turn around and
release their bikes to the general public in 2014, and with that Peloton was in business.
RISE TO GLORY:
Over the next few years, Peloton slowly grew a core base of hardcore users.
Initially, their products mainly appealed to real biking enthusiasts who wanted a solid alternative
to biking outside or attending a real cycling class. But with time, their demographic would
shift closer and closer to everyday people. In May of 2018, Peloton would attempt to expand
their audience by targeting enthusiast runners as well with the launch of the peloton Tread+. And
the Tread+ carried an even more bougie price than their bikes starting at $4300. It should also be
noted that if you want access to all of Peloton’s classes and live streams, you have to get their
All-Access subscription which costs $39 per month or $468 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 costs $30 per month, it would take nearly 12 years to pay the $4300
that it would cost to just get the Tread+. Despite these crazy prices, for people who highly valued
the live-streamed classes and the convenience, there was no better at-home alternative. Also,
with time, their high price tags started to become more of an advantage than a hindrance.
Similar to other high-end brands like Apple and Louis Vuitton, Peloton’s high prices gave them
exclusivity and turned 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,
and this is how it mostly was 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’s revenue numbers would 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 a slew of problems in the background.
ROCKY ROAD:
One aspect that most YouTubers are extremely careful of is avoiding copyrighted music.
Even just a couple of seconds of copyrighted music can get an entire video demonetized.
Unfortunately, it looks like Peloton didn’t have any YouTubers on their design team
because they filled their workout videos with copyrighted music. And in March of 2019,
the National Music Publishers Association would hit Peloton with a $150 million
lawsuit. Peloton instantly responded by removing the copyrighted music from all of their courses,
and even removing certain courses that depended on the music. Most of Peloton’s users weren’t exactly
happy with this change given that copyrighted music is generally better than noncopyrighted
music. But Peloton’s customers weren’t the only ones that were unhappy. In September of 2019, the
music association would double their allegations on Peloton claiming a total of $300 million.
Peloton did end up settling for an undisclosed amount that was likely lower than $300 million,
but I doubt this was a very good experience for Peloton. Shortly after, they would find themselves
in yet another controversy with a commercial called “The Gift That Gives Back.” The plot
of the commercial is a husband buying his wife a Peleton bike and the wife becoming a lot more fit
and athletic over the next year. Most people would just dismiss the 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 the commercial implied 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 continued to rise through the start of the pandemic, but this
led to its own issues. Peloton couldn’t keep up with the massive influx of new orders, and many
customers had waiting times that stretched several months. This led to many customers reconsidering
their orders and canceling them a few months into 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 LONGEVITY PROBLEM: 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. The thing is,
most of these guys weren’t enthusiast bikers or runners. They were actually the type of people who
got a gym membership as a new year’s resolution and then only used it 5 times throughout the
entire year. And, buying a Peloton was basically their Covid resolution. Many of them likely felt
that by spending a significant amount of money and having live training classes, they would be more
compelled to work out. And while this may have worked for a few months or even several months,
as people began to return to their normal lives, their fitness lives also returned
to being nonexistent. Most of these guys kept their Pelotons around for a few more months,
but eventually, they decided to sell them on eBay and Craigslist leading to these sites
being flooded with Peloton listings. Not only did these listings attract buying traffic away from
Peloton’s official website, but it sent a pretty strong signal that everyday people who bought
a Peloton didn’t really 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 as they left the scene, Peloton’s revenue started to
stagnate and decline. As Peloton started to fall out of favor amongst everyday consumers, people
and companies started to poke fun at Peloton. Ryan Reynold’s, 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 after riding a Peloton. Peloton shares would fall
11.3% the day after this episode aired on TV. Clearly, Peloton was suffering from a fleeting
customer base and shifting public image, but it didn’t long for things to go from bad to worse.
THE COLLAPSE:
The nail in the coffin for Peloton came in March of 2021 when a video was released of a child being
sucked into the back of a Peloton treadmill and dying. Following this story, we saw dozens
of reports suggesting that adults, children, and pets were injured due to Peloton products.
Honestly, I’m not sure why Peloton received so much heat when a lot of the fault is shared by
the users of their products. Nevertheless, Peloton implemented a slew of software-based
safety features within 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 millions per quarter ever since. Honestly, I suspect that
a lot of the returns are just people cashing in on an impulse purchase as opposed to people
returning these treadmills due to legitimate safety concerns. I guess it was just these
customers’ lucky day. Given all this negative PR and the oversaturated second-hand market,
Peloton was forced to slash prices to continue appealing to customers which has just made it
even harder to turn a profit. As losses continue to pile up, Peloton has been forced to make harder
and harder decisions. One of these decisions came in early February when Peloton went ahead
and reduced their workforce by 2800 employees. This was around the same time that John Foley
resigned from the company and was replaced by Barry McCarthy. So far, John lost his position
as CEO and his status as a billionaire. The only question left is, will John also lose his company?
UNCERTAIN FUTURE:
Looking forward, while Peloton is definitely in a terrible position right now, I think it’s unlikely
that they’ll file for bankruptcy and completely shut down. Despite all their ups and downs,
Peloton has been able to grow a strong base of core users that wouldn’t use anything else. And
just maintaining this customer base could be quite lucrative for Peloton given the high subscription
fees. With that being said though, the next few quarters don’t look that great as it’s unlikely
that Peloton can really start to build up 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 that 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 they’re
able to pull in more revenue and profit than ever before, but we’ll just have to wait and see.
Do you think Peloton will rise from the ashes or do you think it will become an infamous fitness
fad? Comment that down below. Also, drop a like if you think Peloton’s are overpriced.
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