If Peloton wants to know why the lockdown boom in home exercise was unsustainable, then Ian Rodriguez has a good answer: Working out is more fun with other people.
Rodriguez, a 52-year-old teacher from Preston, Lancashire, canceled his gym membership when the pandemic hit, but couldn’t wait to get back. Like many others, he spent money on gym equipment, including a rowing machine and some weights. But then he started skipping gym class.
“I kept fit at home during lockdown, but as restrictions were relaxed, the lack of social interaction started to affect me. It was getting to the point where I missed going to gym classes. Exercising on your own, even with someone yelling at you on a screen during an online course, just isn’t the same,” she says. Rodriguez is now back in the gym “four or five times a week.”
Millions of people around the world have answered the gym instructor’s call, leaving Peloton, the home fitness company, with more questions about what this means for demand for its exercise bikes, treadmills, run and online classes when you file your final quarterly results on Tuesday.
The last few years have been a wild ride for the company. Peloton was one of the symbolic business successes of the global pandemic lockdown, along with Zoom, Netflix and Amazon. It traded in 2019 at $29 a share and its valuation approached $50 billion in January 2021 when shares topped $160 at the height of the lockdown restrictions. But Peloton’s fortunes have changed and the valuation has plummeted dramatically. Today, the company is worth as much as it was before the IPO, at $8 billion. However, late on Friday, shares of Peloton were up more than 30% in after-hours trading after a report in the Wall Street Journal that Amazon is considering making a bid for the company.
A takeover bid for one of the world’s largest companies would be in keeping with a high-profile brand that is used to making headlines. In May of last year, Peloton recalled its two treadmills following the death of a child and dozens of other injuries, and in late 2019 it was criticized for a “sexist and dystopian” Christmas ad, which featured a woman recording a diary. in video of his Platoon. use after her partner gave her a bicycle.
In December, its stock fell following the on-screen death of Sex and the City character Mr Big while riding in a Peloton in the And Just Like That series reboot. A rushed Peloton parody ad campaign featuring Mr Big actor Chris Noth was subsequently dropped when Noth was accused of sexual assault. Noth denies the accusations.
Now CEO John Foley is facing pressure from at least one shareholder to step down. Blackwells Capital, an activist investor with a 5% stake in Peloton, says he has “serious concerns” about performance and is asking his board to fire Foley and explore a sale.
Anjali Lai, a senior analyst at research firm Forrester, says Peloton is discussing a question that has plagued every company that sells goods and services to consumers: How permanent are the changes brought about by the pandemic?
“Are the dramatic changes in consumer behavior that we have seen in the last two years a boost in consumer demand, or are they indicative of a persistent long-term shift in what consumers buy and how? In the case of Peloton, supply and demand have been volatile, indicating that the at-home fitness experience is an acceleration in consumer demand, not necessarily a persistent shift.”
Peloton makes and sells exercise bikes (starting at £1,550) and treadmills (starting at £2,545), as well as a monthly subscription fee to their online classes of £12.99 a month. It also makes clothing and accessories, although this is a much smaller part of the business, and it recently launched a camera product. As a rough indicator of how many people use its equipment, the company has 2.5 million connected fitness subscriptions, in which users pay £39 a month to access classes through their Peloton bike or treadmill. Peloton doesn’t provide a geographic breakdown of sales, but it currently ships equipment to the US, its largest market, in addition to Canada, the UK, and Germany.
In its latest set of quarterly results in November, it said this year’s sales will be up to $1bn lower than expected, at $4.4bn-$4.8bn, while the number of monthly workouts per subscriber of connected fitness dropped to 16, down from 20 for the same period in 2020. It posted a loss of $376 million in the three months to September last year, versus net income, a measure of U.S. earnings. , from $69.3 million a year earlier, as it lowered the price of its bikes, increased spending on advertising and suffered problems with its supply chain. The company’s chief financial officer, Jill Woodworth, said: “It is clear that we underestimated the impact of reopening on our company and the industry as a whole.”
The New York-based company said last month that it is considering job and production cuts. A CNBC report, citing internal documents, suggested that it was planning to temporarily halt bike and treadmill manufacturing. Responding to the claims in a message to his 3,200 employees, Foley started off strong, saying the report was “out of context” and that the company was taking legal action against the leaker, before acknowledging that cost cuts were on the way. .
“In the past, we’ve said layoffs would be absolutely the last lever we’d expect to pull. However, we now need to assess the structure of our organization and the size of our team, with the utmost care and compassion,” he said.
In a message that drew heavily on American corporate lexicon, Foley added that the company would be “rebooted.” “We feel good about sizing our production right, and as we move to more seasonal demand curves, we are readjusting our production levels for sustainable growth.”
Dan Ives, managing director of US investment firm Wedbush Securities, says Peloton is a “revolutionary” product, but management could not foresee a change in demand. “The clock has struck midnight for Peloton to exit the WFH environment and there could be some darker days ahead as the company adjusts to a lower growth profile,” he says.
Meanwhile, gym owners on both sides of the Atlantic are welcoming the likes of Ian Rodriguez, albeit against the backdrop of a dismal two years for gyms. Before the pandemic, the UK had 7,239 gyms and 10.4 million members, according to the Leisure Database Company, a market intelligence company. He expects both numbers to have dropped in the past year. In the US, Peloton’s biggest market, about a quarter of gyms have closed, according to IHRSA, a fitness industry association, and the number of memberships is also expected to drop from the total of 64. million of 2019.
However, a veteran of the UK gym industry is optimistic about the recovery. John Treharne, the founder and director of Gym Group, which operates 190 low-cost venues across the UK, says the entire UK market is now “pretty close” to pre-Covid levels and could return to normal. for Holy Week. And that, he adds, is partly because people miss the “social aspect” of coming together for collective exercise.
“The kind of people who might have contemplated using an online or Peloton-type product have clearly gone back to the more traditional offering,” he says.
Peloton, meanwhile, needs to switch gears and adapt to a world where gyms are back in business.