Name: Peloton's self inflicted wounds could lead to its demise
Uploaded: 2022-01-28
Duration: 4 min 52 s
Description: Senior Writer Phil Wahba explains why the company may not be able to recover.

Senior Writer Phil Wahba explains why the company may not be able to recover.

Peloton's self inflicted wounds could lead to its demise  

Features

So here we are in early 2022 and Peloton which had been one of the most popular stocks and popular products for the last two years during the pandemic finds itself at the biggest crisis of its history. How did it get here? Well, the trajectory changed and peloton essentially was not able to react quickly enough or with agility to change and demand. And then one thing led to another and uh they've had to halt production and it has really created a lot of chaos for them and dented their brand. Prior to the pandemic, pelton was already accompanied to watch. It was growing by leaps and bounds. A lot of people just like that added convenience of having uh an exercise bike that was connected in their home. Of course Covid comes and then the lockdown start and then the whole thing exploded and more and more people ended up wanting to have home gyms and pelton fit in perfectly. So uh things were went great for the first year and then of course the lockdowns ended and things start to return to normal a little bit uh and people could go back to the gym and you know, let's face it, Peloton is a pricey item, so it is a niche product. And so then it it bumped into reality. But slowing demand was not the only challenge that peloton had to face. There were some unforced errors on their part, there were recalls, accidents involving one of their treadmills and the company's reaction to it and and it's tussled with with the federal government, it ended up being um unnecessarily uh adversarial and it caused peloton um some P. R. Points of the public and made them seem tone deaf. And it really pointed to a company that was strength again, intoxicated by its own numerous And they were famously in late 2020, we're dealing with a lot of backlog of products and they were promising people uh they would get their peloton in three weeks and then they would show up three months later, all this sort of ended up creating an impression of the company that was um a little disorganized and having trouble meeting customer demands. It was clearly a sign of how important pelton's becomes a pop culture when it was featured in the sex and the city reboot as well as in the tv show billions being depicted by characters using it and having heart attacks. That's not the message that pelton necessarily wants to project. And it did earn the company some criticism from some Wall Street analysts saying that the company had been slow to react and uh had lost control of the narrative. So in the last couple of quarters, the problems that politicians faced have really compounded one another. For example, the company sensing opportunities and treadmills in strength, equipment overestimated demand and they also misread how willing uh younger people perhaps with a little bit less income Felt about the product and the company ended up lowering its annual sales forecast in late 2021 by a billion dollars because of what they said was unexpected drops in demand at the same time, they're dealing with slowing demand on their flagship product. They're trying to introduce new products of strength and the treadmill and it ended up being way too many things for this young company to take on. In early 2022, Pelton just didn't seem to be able to catch a break. And the woes that had started in 2021 continued. It ended up saying that it had hired McKinsey to help it figure out a better cost structure. And let's not forget that a year before they had hired for $500 million, a company that was supposed to help it Meet demand. So they went from not being able to meet demand in late 2022, having too much inventory a year later. And so all this has generated a sense of a company that is going sideways and the shares have fallen 83% from their high about a year ago. So market cap of 52 billion to less than eight billion and that inevitably attracts activist investors who would like to see the company improve its performance. One of them has even called for the ceo john Foley to step aside and let a more experienced team come in, peloton can take a little bit of solace in knowing that um others in the connected fitness space are having their own challenges, I fit has pulled its I. P. O. Facing uh similar uncertainty around demand and Mirror, which is now owned by lululemon cut its revenue forecast. So it's tough going. Uh this is a niche market. And now with people's return to their old exercise habits it's an even tougher slog for peloton. So it's clear that there's been a lot of pain to go around and the connected fitness area. But in the case of peloton, a lot of it's pain, it's self inflicted by his own mistakes.