Peloton’s ascent, decline, and bid for revival: A closer look

Peloton’s meteoric rise and fall was marked by a lavish celebration after the company went public in September 2019. The event was held at Hudson Yards in New York City, where employees dined on seafood and sipped champagne as they fantasized about their newfound wealth. However, this period of “opulence” was short-lived, as Peloton’s stock prices reached dizzying heights before suffering a stunning fall from grace just over two years later.

Since its peak intraday share price of $167 in December 2020, Peloton’s stock has tumbled to $13.60 a share, which is about half of its opening share price of $27. Its market cap, which once surged to more than $45 billion, has shrunk to about $4.7 billion. Nonetheless, shares have risen by about 71% so far this year.

Peloton’s popularity surged during the early days of the Covid-19 pandemic as a result of gym closures, and the company gained traction as a solution for people to stay fit at home. However, it made the critical error of assuming that demand for its products would continue, even as lockdowns lifted and the pandemic waned.

The company’s problems were compounded by a decline in sales, a shift in consumer demand, and a scandal after a six-year-old child died and dozens of others were injured in incidents involving Peloton’s Tread+ product, leading to a costly recall. These issues resulted in co-founder and CEO John Foley stepping down just over a year ago. He was replaced by Barry McCarthy, a former executive at Spotify and Netflix, who introduced an aggressive turnaround plan and a new era of fiscal rigor.

McCarthy has managed to improve Peloton’s free cash flow levels from negative $747 million to negative $94 million as of the end of its most recent fiscal quarter, bringing the company back from the brink of extinction. In the three months that ended on December 31, 2021, Peloton’s net losses shrank to $335.4 million, marking the narrowest loss since its 2021 fiscal fourth quarter. McCarthy sees this quarter as the company’s best performance since he took over and has offered a glimmer of hope that a comeback could be on the horizon in a letter to shareholders.

Despite these improvements, the company is still losing hundreds of millions of dollars each quarter, and demand for its signature connected fitness products continues to decline. It has all but ceased manufacturing these machines as it seeks to offload $1.05 billion in inventory as of the end of its most recent fiscal quarter. Securities filings show that Peloton spent $0 on work-in-process inventories, or products that are actively being manufactured, between July and December 2021.

Under McCarthy’s leadership, Peloton is shifting away from hardware and transforming into a software-first company that focuses on its content and the sticky subscription revenue it generates.