Troubling Peloton News: Falling Revenues & Stock Prices, Future Obstacles, Possible Federal Investigation
Since the start of the pandemic, Peloton has been the hottest name in at-home digital fitness. Now several crises threaten its crown.
Thanks to the news that the high quality fitness products by Peloton were increasingly getting popular, the company was the seemingly unassailable champion of the post-COVID-19 fitness world for a year. Its quarterly revenue ballooned from $228 million in the first quarter of 2020 to $1.2 billion by the third of 2021. Subscription sales and total workouts logged increased at the same astronomical pace. Founded in 2011, Peloton was already a cult brand that embodied a future of connected fitness. The pandemic’s closure of gyms made its stationary bikes must-have for cyclists stuck at home.
Now the smart bike maker’s reputation has been stained, its stock price reduced and its pace of growth threatened by news of a federal investigation into its treadmill safety debacle and a dour quarterly report showing a dip in revenue and grave warnings about a few factors that could nip its profit margins.
In a SEC filing, Peloton revealed that the Department of Justice and Department of Homeland Security have subpoenaed the company for documents and other information related to its reporting of the injuries caused by its Tread+ treadmill.
In April, the news was out that Consumer Product Safety Commission issued a devastating advisory about the Peloton Tread+, revealing that it had collected 70 incidents in which children were allegedly harmed by the device. While active, the Tread+ could pull small children beneath it and pin them. After initially refusing to recall the devices, Peloton eventually gave into mounting public pressure.
Peloton introduced Tread+ in November as a way to capture some of the interactive magic of its wildly successful stationary bike on a treadmill and sold about 125,000 machines for $2,495 each in the U.S. The company said the recall cost the company $165 million, mostly in lost sales and return costs. Embarrassingly it may have avoided the debacle if it had implemented a simple automated stop and four-digit lock on the treadmills.
The transition of the issue from the Consumer Product Safety Commission to the departments of Justice and Homeland Security indicates some suspect Peloton of wrongdoing in how it reported the incidents to federal regulators. Companies that make and distribute consumer products have to report information on possibly defective or harmful products to the CPSC. The DOJ has not made any charges of wrongdoing but its interest in Peloton’s reporting practices alone could further injure the company’s reputation.
On top of all that, Peloton faces multiple lawsuits over the Tread+, the company noted in the SEC filing.
In the quarterly report, Peloton had less total quarterly revenue than in the previous quarter for the first time in two years. In the fourth report of 2021, it gained $936.9 million in revenue, compared to $1.2 billion from the third quarter. Its net loss was $313.2 million compared to $8.6 million in the preceding quarter.
Because of the costs of marketing and research and development, in addition to operations and materials, Peloton usually runs at a net loss each quarter, which is not uncommon for new-ish companies. In the report, the company predicted a return to probability in 2023.
Until then, Peloton warned investors its profitability will be impacted by a few factors. One is a price decrease for its original bike, from $1,895 to $1,495. While Peloton once sold bikes as quickly as they could get them off the factory floor, their hotness factor may diminish (as hotness factors often do) and people resume some of their pre-COVID exercise routines. Getting as many bikes in homes may be a smart long game as that hooks more people into subscriptions, but losing that $400 per bike will diminish the company’s profits in the short term.
Another short-term profit-killer will be reinvestment in its line of treadmills, which are not as profitable by unit as the bikes.
Lastly, commodity prices and freight rates are expected to climb increasing the costs of manufacturing and shipping.
Investors were rattled by the bad Peloton news. Peloton stocks sold for $118 per share on Thursday and were ranging from $104 to $106 on Friday. The peak for Peloton stock was $162.72, which it reached in December as COVID-19 infection rates climbed and the pandemic’s impact on everyday life was at its most pronounced.
Peloton has quickly accelerated into the public consciousness over the last year and its stature among makers of smart fitness equipment is unparalleled. Its current pile of problems are both dire and, the company admits, not going to be resolved by the next quarter.
