It’s been a hot minute since a publicly traded hardware company experienced a valuation correction as dramatic as Peloton’s. As a former hardware founder and investor, I can’t help but feel sorry for the no-mercy hill climb the company finds itself in.
Peloton hasn’t been able to catch a break, even in an era where working out at home became a much better idea than sharing equipment at the nearest gym.
After hitting a 52-week peak of $155.52 per share, the company’s stock crashed 84% in value in just a few short months. It’s nothing short of incredible, given that it was once a darling of Wall Street and customers alike.
While it’s hard to point at a single point of failure, the company’s streak of bad luck has been so spectacular that it’s not too soon to ask if gross mismanagement might be at play, and some investors already are.
So far, the story goes like this: Peloton users’ private account data was leaked, GPS coordinates were accidentally embedded in users’ profile pictures, products were recalled after 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 bumbled crisis management.
if you’re planning to build a $400 million factory, get a quarter of the way through and quit with nothing to show for it, it does feed the narrative of executive incompetence.
The company’s public market journey has been far from calm. Peloton filed for an IPO back in 2019, targeting a price range of $26-$29 per share for a valuation of up to $1.2 billion. Eventually, it listed at $29 per share, only to struggle alongside other hardware IPOs of the time.
Peloton built up a cult following even before we all went into lockdown, but the pandemic helped fuel a meteoric rise in value and investor adulation. But even as its stock price climbed and subscriptions soared, analysts seem to have read the writing on the wall: They gradually downgraded it from “buy” to “hold” before cutting their rating to a “sell.”
The company appears to have ultimately failed to bolster its long-term financial health during its time in the spotlight. This week, Peloton announced that longtime CEO John Foley was stepping down. Former Spotify CFO Barry McCarthy will take the helm.
McCarthy was the CFO of Netflix from 1999 to 2010, the tail end of the DVD years before the company became a streaming giant. With a resume that lists board experience at Pandora, Eventbrite, Wealthfront, Spotify and Instacart, he’s facing a hell of a ride as he tries to right the ship at Peloton.
One thing is for certain: Peloton needs a beast of a turnaround to save its bacon. Armed with a team from McKinsey to see what can be salvaged, McCarthy must pool his available resources to chart a new course for the morale-battered company. So, what happened? Let’s take a closer look.
In 2019, Peloton endured lots of bad press — deservedly so. A tone-deaf and sexist TV ad seemed to be a turning point, coming around the same time the company reported that its churn rate had doubled. In a SaaS universe where customer retention is one of the most important metrics, that’s not a good look.
Once news broke at the end of 2020 that vaccines were coming to market, fitness stocks arrested their free fall, and a few companies that saw their fortunes rise during the pandemic were left scratching their heads.
Zoom and Peloton both took a beating, and while there’s an easy case to be made for remote meetings, an exercise bike that sells for nearly $2,000 and comes with a relatively expensive subscription is not nearly as essential. As TC’s Alex Wilhelm mused in late 2020, “Companies are worth the present value of their future cash flows, so when the latter part of that equation changes, the former does as well.”
Peloton launched apps on Android TV and (much later) on Apple TV with $13-per-month subscriptions in 2020, seemingly in a bid to cash in on the pandemic home exercise boom for people who didn’t own its hardware, and rumors started swirling that it was going to offer a lower-end treadmill and a higher-end bike. It did launch both, with a $2,495 price tag each.
