Peloton Must Face Investor Lawsuit as It Pivots to Wellness
The ghost of Peloton’s pandemic inventory lingers, as a Manhattan appeals court revives claims the company misled investors about excess stock and demand
During COVID, Peloton couldn’t make bikes fast enough. By 2021, demand sputtered and warehouses swelled with unsold equipment and now those woes are at the center of a revived shareholder lawsuit.
On Wednesday, a federal appeals panel in Manhattan reversed in part a lower court’s dismissal, saying investors can move forward with claims that Peloton and several former executives, including co-founder and then-CEO John Foley, made false and misleading statements that propped up the stock. Foley exited Peloton in early 2022 and has since pivoted to home décor with Ernesta.
The suit, led by the City of Hialeah Employees’ Retirement System and Robeco Capital Growth Funds, covers trades between February 5, 2021, and January 19, 2022. Investors allege that Peloton concealed weakening demand while warehouses held roughly three months of unsold equipment.
Most of Peloton’s public statements were tossed out, but the appeals court found three disclosures that plausibly crossed the line: Foley’s defense on an August 2021 earnings call that a $400 price cut was “absolutely offensive” rather than defensive, and SEC filings in August and November 2021 that described excess inventory as only a potential risk.
When Peloton later disclosed that 91% of its inventory was unsold and slashed its annual revenue forecast by more than $1 billion, shares plunged 35% in a single day in November 2021.
Not everyone on the panel agreed. Judge Jon Newman dissented, arguing that investors had already been warned through revenue guidance and other disclosures and were unlikely to prove deliberate fraud. The case now heads back to U.S. District Judge Andrew Carter in Manhattan, who will decide whether it proceeds further.
The court fight comes as Peloton, now on its third CEO, works to reset its business around wellness. Earlier this month, CEO Peter Stern, who took over in January, outlined a strategy to evolve the connected fitness company into a full-scope wellness platform. The plan includes expanding into categories like sleep, recovery, nutrition and stress management while leaning into AI-powered personalization, in-person activations, and a bigger retail push.
Despite posting better-than-expected Q4 results ($607 million in revenue, ahead of guidance) Peloton also announced a round of job cuts affecting about 6% of its workforce, part of a cost-savings program expected to generate $100 million by 2026.