It has been a challenging few months for the Peloton connected home exercise business.
The Peloton strategic intent
In 2012, the founding team (shown below) set out to bring talent in technology, hardware and production together to accomplish an ambitious goal: “bring the community and excitement of boutique fitness into the home.”
The pandemic leads to a substantial spike in demand
Peloton is seen as one of the pandemic ‘winners’ as gyms around the world faced mandatory closures and people flocked to home exercise. The company has increased its connected fitness subscriptions by 1.9 million since the pandemic started. These are subscribing customers paying $468 each year for access to live and on-demand exercise content.
Note: Peloton’s financial year ends on June 30th.
Several pieces of challenging news
However, since early 2021, the company has experienced numerous negative events which include:
Sliding share price
This series of events has led to a dramatic decline in the price which was trading at a 52-week high of $161 in February 2021 but is just $27 on January 21st, 2022 — below the $29 price of its shares when it became a public company on September 26th, 2019. The company’s value (market capitalisation) has fallen so low that it is dropping out of the Nasdaq 100 index on January 24 2022. The Nasdaq 100 is a market capitalization-based index comprising the largest non-financial companies.
How did Peloton find itself in this position?
When companies like Peloton grow rapidly, we rush to try and understand the ’secret sauce’. Often this is not easy which makes it more challenging to explain what may now be happening as current sentiment turns against Peloton.
A few important observations. We need to remember that Peloton remains a relatively young company — less than a decade old with a senior management team drawn from outside of the physical activity industry. When they design and build a treadmill and place it in a customer’s home, they are doing this for the very first time and so drawing on limited experience. One of the intangible benefits of acquiring the Precor business in December 2020 for $420 million was to tap into the 40 years of manufacturing experience. My concern now is that if there is to be a reduction in staffing they will be looking at Precor which is where the deep tacit knowledge and insight resides.
How motivated does the Peloton senior management remain now that they are financially secure? SEC filings show that five executives sold $399 million of stock (John Foley, the CEO has sold $119 million in his selling spree which started back in November 2020.) Successful strategic execution requires a fully engaged team that remain emotionally invested in the mission. Can the management team remain committed to the mission when they could stop work today and never have to work again?
I am not fully persuaded by Peloton rolling out a growing suite of new products. Was it even necessary for them to venture into treadmills when the business was so successfully built around a bike? Now they are launching a strength product (Peloton Guide) and possibly a rowing machine. If I was the CEO, I would be building a great business and community around a single exercise modality.
I do think recent announcements are damaging the Peloton story and will weaken consumer sentiment toward the brand. People want to feel good about the brands they associate with because they symbolise who we are. Customers should be able to proudly advocate for the brand and not have to defend them.
So what next for Peloton?