Moneybox

Peloton Is the Rise-and-Fall Story of Our Pandemic-Scarred Times

NEW YORK, NY - DECEMBER 04: A Peloton stationary bike sits on display at one of the fitness company's studios on December 4, 2019 in New York City. Peloton and its model of on-demand video cycling classes has come under fire after the release of a new commercial that has been criticized by some as sexist and classist. (Photo by Scott Heins/Getty Images)
This stationary bike is going nowhere. Scott Heins/Getty Images

Peloton, which went from a luxury fitness product to a meme to a pandemic fitness craze, has its gears stuck. On Thursday, CNBC reported that Peloton is temporarily ceasing production on a number of exercise products, including its trademark Bike, due to a “significant reduction” in demand worldwide. An internal presentation reportedly indicated that company is pausing production of the Bike from February to March, the higher-end Bike+ through June, the Tread treadmill for six weeks beginning in February, and the Tread+ for the rest of fiscal year 2022. The presentation attributed the drop in demand to increased activity from competitors and price sensitivity among shoppers. It also suggested that, in the fall, Peloton severely overestimated demand for the third and fourth quarters, and now has thousands of products collecting dust in warehouses. Its exercise equipment ranges from $1,495 to $4,295.

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Peloton’s stock plummeted by 23.9 percent after CNBC’s report, though rebounded slightly on Friday as CEO John Foley did damage control. Foley sent out a public memo to workers reading, in part, “We’ve found ourselves in the middle of a once-in-a-hundred year event with the COVID-19 pandemic, and what we anticipated would happen over the course of three years happened in months during 2020, and into 2021.” He added that the company is resetting production levels and considering layoffs in a bid to become more flexible, and claimed that media reports about the pause were incomplete, without offering specifics.

Founded in 2012, Peloton rose to become fitness unicorn, or a startup valued at $1 billion, by selling exercise bikes with large internet-enabled touchscreens that played live broadcasts of fitness classes. It transformed into a true powerhouse during the pandemic as people looked for ways to exercise during lockdowns. In 2020, the company’s revenue hit $1.8 billion, roughly double that of previous years, and became profitable for the first time in its history. Its stock rose by almost 400 percent over the year. While it currently has a glut of product, Peloton was once struggling to churn out bikes fast enough to meet demand during the height of the pandemic. At one point, the company resorted flying rather than shipping products in order to keep up with orders, which increased its transportation costs tenfold. Peloton thrived not only by allowing users to work out from the comfort and safety of their homes, but also by simulating the experience of gym classes and communities with virtual group sessions featuring purportedly elite fitness instructors. (At one point the company even began offering anti-racist exercise classes.)

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Peloton’s eyes grew bigger and bigger with its pandemic boom. It tried to diversify into yoga and strength classes, and acquired a fitness company called Precor for $420 million in April to boost production and move into the hotel gym market. There were signs, however, that Peloton’s whirlwind success couldn’t last. The company’s stock fell by 25 percent when news of a viable coronavirus vaccine broke in November 2020, as investors feared that people would prefer to just go to gyms when they eventually reopened. Over the course of 2021, the stock continued to tumble by 76 percent, and the company had to recall about 125,000 of its treadmills after the Consumer Product Safety Commission reported that they were involved in 70 injuries and a child’s death. A number of competing exercise bikes like the ProForm Studio also entered the market, many of which were easier on the pocketbook given the $1,495 sticker price for Peloton’s base model and the $39-per-month subscription. The company will begin charging an extra $250 delivery fee for the base model at the end of January, which it blamed on global supply chain problems and inflation.

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Peloton isn’t the only pandemic darling that’s now fading from the limelight. Netflix stock dropped by 23 percent after an earnings report on Thursday signaled that it would add only 2.5 million subscribers this quarter, far below the 6 million that analysts estimated. Shares of Zoom and DocuSign, whose products were the linchpin for many work-from-home operations, have been trading at their lowest levels since May 2020 and lost more than half their market values compared to their peaks. These sudden declines may portend an end to the heyday of “pandemic stocks” that thrived on the stay-at-home market. The New York Times reports that investors are now flocking to “reopen stocks” for companies like the concert promoter Live Nation that could reap a windfall from loosening restrictions.

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