It’s been hot minute since a publicly traded hardware company experienced a valuation adjustment as dramatic as Peloton’s. As a former hardware founder and investor, I can’t help but feel sorry for the brutal hill climb the company is in.
Peloton hasn’t been able to take a break, even in an era when working out at home became a much better idea than sharing equipment at the nearest gym.
After peaking at $155.52 a share for 52 weeks, the company’s stock crashed 84% in value in just a few months. It’s nothing short of incredible, considering it was once a darling of Wall Street and customers.
While it’s hard to pinpoint a single point of failure, the company’s bad luck is so spectacular that it’s not too early to ask if gross mismanagement has occurred, and some investors already are.
So far, the story goes like this: Peloton users’ private account details have been leaked, GPS coordinates have been accidentally embedded in users’ profile photos, products have been recalled after the tragic death of a 6-year-old and two different TV sets. dramas featured characters getting injured while using a Platoon, followed by a textbook example of deranged crisis management.
if you plan to build a $400 million factory, run a quarter of the way, and stop with nothing to show for it, that feeds the narrative of executive incompetence.
The company’s journey to the public market was far from smooth. Peloton filed an IPO in 2019, with a price range of $26-$29 per share for a valuation to $1.2 billion. It ended up trading at $29 a share, only to struggle alongside other hardware IPOs of the time.
Peloton built a cult following even before we all went into lockdown, but the pandemic fueled a rapid surge in value and admiration from investors. But even as stocks rose and subscriptions soared, analysts seemed to have read the writing on the wall: They gradually lowered it from “buy” to “hold” before lowering their rating to “sell.”
It appears that the company ultimately failed to bolster its long-term financial health during its time in the limelight. This week, Peloton announced that longtime CEO John Foley was stepping down. Former Spotify CFO Barry McCarthy takes over.
McCarthy was Netflix’s CFO from 1999 to 2010, the end of DVD, years before the company became a streaming giant. With a resume with board experience at Pandora, Eventbrite, Wealthfront, Spotify and Instacart, he’s in for a great ride as he tries to get the ship right at Peloton.
One thing’s for sure: Peloton needs a beast of a turnaround to save his bacon. Armed with a team from McKinsey to see what remains to be saved, McCarthy must pool his available resources to chart a new course for the morally battered company. So what happened? Let’s take a closer look at that.
In 2019, Peloton had to endure a lot of bad press – rightly so. A tone-deaf and sexist TV ad appeared to be a turning point, around the same time the company reported its churn rate had doubled. In a SaaS universe where customer retention is one of the most important metrics, that doesn’t look good.
When news broke in late 2020 that vaccines were hitting the market, fitness stocks halted their freefall, and a few companies that saw their fortunes soar during the pandemic were left scratching their heads.
Zoom and Peloton both took a beating, and while there’s an easy case for remote meetings, an exercise bike that retails for nearly $2,000 and comes with a relatively expensive subscription plan isn’t nearly as essential. As Marketingwithanoy’s Alex Wilhelm mused in late 2020, “Companies are worth the present value of their future cash flows, so if the latter part of that equation changes, so does the first.”
Peloton launched apps on Android TV and (much later) on Apple TV with subscriptions of $13 a month in 2020, ostensibly in an effort to capitalize on the pandemic boom of at-home workouts for those who didn’t own the hardware, and rumors started swirling that it would offer a lower treadmill and a more expensive bike. It launched both, with a price tag of $2,495 each.