From: acquiredfm
The COVID-19 pandemic significantly altered Peloton’s trajectory, transforming its market position and influencing its business strategies [01:17:10].
Initial Surge and Product Market Fit
Prior to the pandemic, Peloton had a strong product-market fit with a specific, narrow customer segment [01:17:13]. The pandemic, however, created an instant product-market fit with many more consumer segments [01:17:25]. This shift was largely due to people needing to work out at home [00:51:06].
Peloton offered a three-month free trial for its digital app subscribers at the beginning of the pandemic [00:51:03]. This initiative led to a tenfold increase in digital subscribers, from approximately 100,000 to nearly 1.2 million, within 45 days of the pandemic’s onset [00:50:53]. This rapid increase in subscribers was a significant customer acquisition spike [00:51:25].
Unprecedented Growth
The company added roughly one million subscribers in the year following the pandemic’s start [01:17:27]. This growth dramatically increased Peloton’s revenue:
- Fiscal year ending June 30, 2020: $1.8 billion [01:17:33]
- Fiscal year ending June 30, 2021: $4 billion [01:17:42]
Peloton’s stock price peaked at over $150 per share, reaching a market capitalization of $49 billion [01:17:46]. This valuation reflected widespread belief that fitness was becoming fully digital and Peloton was the market leader [01:18:01].
Supply Chain and Manufacturing Challenges
Despite the surge in demand, Peloton faced significant challenges faced by Peloton related to its supply chain and manufacturing. By September 2020, obtaining a Peloton bike became nearly impossible, with a four-month backlog due to the company not manufacturing its own bikes [01:22:16]. Peloton was reliant on international shipping and supply chain partners [01:22:31].
In December 2020, Peloton acquired Precor for $420 million in cash, primarily to gain US-based manufacturing capabilities and alleviate supply chain issues [01:29:41]. In spring 2021, Peloton announced plans to build its own manufacturing facility, the Peloton Output Park in Ohio, requiring another $400 million cash outlay [01:31:24]. These investments were made under the assumption that demand would continue to grow [01:36:01].
Post-Pandemic Demand Decline and Financial Impact
Contrary to Peloton’s projections, the surge in demand during the pandemic was largely pulled forward, leading to a significant slowdown afterward [01:34:50]. This resulted in an inventory glut of $1.3 billion worth of bikes and treadmills that the company struggled to sell [01:33:50].
The slowdown was stark:
- Q4 revenue growth: 9% [01:35:08]
- Q1 revenue growth: 5% [01:35:11]
- Guidance for fiscal year revenue was cut from $4-4.5 billion to $3.7-3.8 billion, indicating a year-on-year decline [01:35:37].
In February 2022, Peloton announced significant restructuring:
- They pulled the plug on the Peloton Output Park in Ohio [01:37:51].
- 2,800 people were laid off across the business, including 20% of corporate staff [01:37:56].
- Barry McCarthy was appointed as the new CEO [01:38:03].
Market and Brand Perception During the Pandemic
While initial pandemic demand boosted Peloton, some marketing and public relations events also impacted its brand during this period:
- Holiday 2019 Commercial: A controversial holiday commercial sparked debate but ultimately generated significant hype, potentially benefiting Peloton [01:10:06].
- Treadmill Recall: In spring 2021, tragic accidents and a recall of the Tread product occurred [01:31:47]. Peloton initially mishandled the response by suggesting users were at fault, leading to a 15% stock drop before issuing an apology and cooperating with investigations [01:31:54].
- “Sex and the City” Incident: In November 2021, Mr. Big’s death on a Peloton bike in the new “Sex and the City” series caused a drop in stock price [01:32:37]. This incident highlighted investors’ uneasiness about the company’s future prospects [01:33:08].
Comparison to Other Pandemic-Era Companies
Peloton’s experience contrasts with other companies that saw a pandemic-driven spike in demand. For instance, Amazon’s spike in demand continued to rise across its businesses, while Peloton experienced a spike followed by a significant decline [02:09:04]. Similarly, Zoom, another pandemic-era growth stock, maintained high revenue growth and free cash flow positivity despite a stock crash, unlike Peloton which became deeply unprofitable [02:09:31].