Peloton had a disastrous 2021. But as impossible as it may seem, the exercise equipment company is arguably off to an even worse start to 2022.
Shares of Peloton (PTON) are down nearly 25% this year and trading at their lowest level in nearly two years. The stock was up 12% Friday though after the company confirmed late Thursday that it may be looking to slow production of its bikes and treadmills and potentially lay off workers.
The news came after CNBC reported Peloton was considering pausing production of its low-end bike (which still costs $1,495) for two months. Peloton CEO John Foley, while not referring to CNBC specifically, categorized “rumors that we are halting all production of bikes and Treads” as “false.”
So can Peloton be fixed? If the stock continues to slide, there may be more pressure on the company to restructure further, or potentially even look for a buyer. Peloton did not respond to requests for comment.
Peloton shares plunged more than 75% in 2021 as the once red-hot stock (it soared nearly 400% in 2020) spun out of control. The company has gone from being a pandemic-era stay-at-home darling to one that is constantly having to put out PR fires.
Product recalls have hurt the company’s image and its sales. The high prices for its equipment also don’t help. Competition from upstarts selling much cheaper bikes has eaten into sales, as not everyone that wants to work out is a wealthy suburbanite with plenty of disposable cash to spend.
Peloton has nearly 6 million subscribers, many of which are loyal. But make no mistake: This is still a high-end, niche company.
Peloton has also been hurt by the fact that more people have started to go back to the gym as the pandemic has worn on, especially now that millions of Americans are vaccinated and boosted for Covid-19.
It’s been so bad that Peloton even suffered a brief stock drop after the fictitious Mr. Big character from “Sex and the City” died after using a Peloton on the show’s new HBO Max streaming reboot. (HBO Max, like CNN, is a part of AT&T (T)’s WarnerMedia division.)
Peloton tried to “spin” this story by running a tongue in cheek ad featuring Mr. Big actor Chris Noth, but even that backfired after Noth was subsequently accused of sexual assault my multiple women. Peloton has stopped touting the viral ad.
Several insiders have been selling stock in the past year, too. Even though many of the stock sales are part of pre-arranged plans, the optics certainly aren’t great.
The company continues to lose money and it is expected to post more red ink in its next fiscal year as well.
The road ahead doesn’t look too promising
Peloton faces an uphill climb. Many analysts have soured on the firm. While 15 still have “buy” ratings on the stock, fourteen have a lukewarm “hold” on Peloton and two even have “sell” recommendations,
“Peloton is hoping that future sales benefit from lowering prices of its entry-level Bike to $1,495, which we think is a show-me story,” said CFRA analyst Kenneth Leon in a report on the stock last month. He has a “hold” on Peloton, calling it a “broken growth stock.”
One also has to wonder if Peloton might be better off as a private company or if a larger publicly traded firm could swoop in to take it over.
Just this week, troubled video game company Activision Blizzard (ATVI), which has been accused of having a toxic workplace culture riddled with harassment, found a savior in Microsoft (MSFT).
It’s not clear who exactly would be a good fit for Peloton. Apple (AAPL) is occasionally mentioned as a possible suitor, which could make sense given that the Apple (AAPL) Watch powers the company’s Apple (AAPL) Fitness+ app.
But at least one investing firm thinks Peloton should actually go on the offensive and make an acquisition of its own in order to try and diversify. Citron Research, run by noted short seller Andrew Left, believes meal kit company Blue Apron (APRN) could make sense as a Peloton purchase.
“The company most likely to acquire Blue Apron is Peloton. Peloton is facing the dilemma of how to grow its subscription revenue and the answer is to sell your customers more items,” said Citron in a bullish report Thursday about Blue Apron. (Not every Citron recommendation is a sell.)
“Peloton wants to be known as a health and wellness company, not a fitness business. Peloton sells a lifestyle and the two key components of a healthy lifestyle are diet and exercise,” Citron added.
Blue Apron had no comment on the Citron report.
Peloton’s woes are also hurting the once trendy “buy now, pay later” stock Affirm, which lists Peloton as its biggest customer. Affirm said in its annual report that Peloton accounted for about 20% of its sales last year.
Affirm, along with other companies in the BNPL market, have already been hurt by worries of a regulatory crackdown on the industry, which lets people pay in installments for online purchases. Shares of Affirm are down nearly 40% this year and have fallen more than 10% this week.
– Hey, Peloton owners: Are you still using your Bike or Tread? Tell us why or why not. And if the answer is no, do you plan to sell it? Please email your response to firstname.lastname@example.org.