Peloton’s fortunes race downhill as fitness fans return to gyms

The exercise bike maker is worth less than a fifth of its $50bn valuation during global lockdown

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, cancelled his gym membership when the pandemic hit but couldn’t wait to get back. As many others did, he spent money on gym equipment, including a rowing machine and some weights. But then he started missing the gym classes.

“I kept fit at home throughout the lockdown, but as restrictions eased, the lack of social interaction started to get to me. I was getting to the stage where I missed going to classes at the gym. Exercising on your own, even with someone shouting at you on a screen during an online course, just isn’t the same,” he says. Rodriguez is now back at the gym “four or five times a week”.

Millions of others around the world have responded to the call of the gym instructor, leaving Peloton, the home fitness company, facing further questions about what this means for demand for its exercise bikes, treadmills and online classes when it reports its latest quarterly results on Tuesday.

The last few years have been a wild ride for the company. Peloton was one of the symbolic commercial successes of the global pandemic lockdown, along with the likes of Zoom, Netflix and Amazon. It floated in 2019 at $29 per share and its valuation approached $50bn in January 2021 as shares went over $160 at the height of lockdown restrictions. But Peloton’s fortunes have turned, and the valuation has sped downhill dramatically. Today, the company is worth as much as it was around flotation, at $8bn. Late on Friday, however, shares in Peloton surged 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 from one of the world’s biggest businesses would be in keeping with a high-profile brand that is used to making headlines. In May last year, Peloton recalled its two treadmills following the death of a child and dozens of other injuries, and in late 2019 it was lambasted for a “sexist and dystopian” Christmas advert, which featured a woman recording a video diary of her Peloton use after her partner gave her a bike.

In December, its shares tumbled following the onscreen death of the Sex and the City character Mr Big while riding a Peloton in the series reboot, And Just Like That. A rushed-out parody ad campaign by Peloton featuring the Mr Big actor, Chris Noth, was subsequently dropped when Noth was accused of sexual assault. Noth denies the accusations.

Now, the chief executive, John Foley, is facing pressure from at least one shareholder to resign. Blackwells Capital, an activist investor with a 5% stake in Peloton, says it has “grave concerns” about performance and is calling on its board to fire Foley and explore a sale.

Anjali Lai, a senior analyst at the research company Forrester, says Peloton is wrangling over a question that has affected all companies selling goods and services to consumers: how permanent are the changes brought about by the pandemic?

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“Are the dramatic changes in consumer behaviour that we’ve observed over the last two years a pulling forward of consumer demand, or are they indicative of a long-term, persistent change in what consumers buy, and how? In Peloton’s case, supply and demand has been volatile, which indicates that the at-home fitness experience is an acceleration of consumer demand, not necessarily a persistent change.”

Peloton makes and sells exercise bikes (starting at £1,550) and treadmills (starting at £2,545), as well as a monthly subscription fee to its online classes at £12.99 a month. It also makes clothing and accessories, although this is a much smaller part of the business, and recently launched a camera product. As a rough proxy of how many people use its equipment, the company has 2.5m connected fitness subscriptions, in which users pay £39 a month to access classes through their Peloton bike or treadmill. Peloton does not give a geographic breakdown of sales, but it currently ships equipment to the US – its biggest market – plus Canada, the UK and Germany.

In its last set of quarterly results in November, it said sales this year will be up to $1bn lower than expected, at $4.4bn-$4.8bn, while the number of monthly workouts by each connected fitness subscriber had fallen to 16, versus 20 for the same period in 2020. It recorded a loss of $376m in the three months to September last year, against net income – a US measure of profit – of $69.3m the year before, as it cut the price of its bikes, ramped up ad spending and suffered problems with its supply chain. The company’s chief financial officer, Jill Woodworth, said: “It is clear that we underestimated the reopening impact on our company and the overall industry.”

The New York-based company said last month that it is considering job and production cuts. A CNBC report, citing internal documents, suggested it was planning a temporary halt to bike and treadmill manufacturing. Responding to the claims in a message to his 3,200 staff, Foley started off strong, saying the report was “out of context” and the company was taking legal action against the leaker, before acknowledging that cost cuts were indeed on the way.

“In the past, we’ve said layoffs would be the absolute last lever we would ever hope to pull. However, we now need to evaluate our organisation structure and size of our team, with the utmost care and compassion,” he said.

In a message that drew heavily on the American corporate lexicon, Foley added that the company would be “resetting”. “We feel good about right-sizing our production, and, as we evolve to more seasonal demand curves, we are resetting our production levels for sustainable growth.”

Peloton's share price

Dan Ives, the managing director of the US investment firm Wedbush Securities, says Peloton is a “revolutionary” product but management failed to foresee a shift in demand. “The clock has struck midnight for Peloton coming out of the WFH environment and there could be some darker days ahead as the company adjusts to a lower growth profile,” he says.

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Meanwhile, gym owners on both sides of the Atlantic are welcoming back the likes of Ian Rodriguez, albeit against a backdrop of a dire two years for gyms. Pre-pandemic, the UK had 7,239 gyms and 10.4m memberships, according to the Leisure Database Company, a market intelligence firm. It expects both numbers to have fallen last year. In the US, Peloton’s biggest market, about a quarter of health clubs have closed, according to the IHRSA, a fitness industry association, with the number of memberships also expected to drop from the 2019 total of 64m.

Nonetheless, one UK gym industry veteran is optimistic about recovery. John Treharne, the founder and director of the Gym Group, which operates 190 low-cost venues around the UK, says that the entire UK market is now “pretty close” to pre-Covid levels and could be back to normal by Easter. And that, he adds, is partly due to people missing the “social aspect” of gathering for a collective workout.

“The sort of individuals who might have contemplated using an online or Peloton-type product have clearly returned to the more traditional offering,” he says.

Peloton, meanwhile, needs to change gear and adjust to a world where gyms are back in business.