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Peloton's Surprise Move May Kill Its 2022 Comeback Efforts

The connected fitness pioneer has struggled and its latest decision suggests that's likely to continue.

The Covid pandemic created a perfect storm for Peloton (PTON) - Get Peloton Interactive, Inc. Class A Report. Gyms closed or operated under major restrictions and many well-off people kept working, albeit from home, so they had added expendable income and a need for a status symbol they could also work out on.

That led to a lot of people buying a Peloton connected fitness bike. The purchase met a lot of needs. Yes, the bike offers a top-tier workout that can replace a gym visit, and saying you bought one replaced those humble brag social media vacation pic from Vail, Turks and Caicos, or some other high-end destination.

The pandemic accelerated growth for the company pulling forward purchases by wealthy customers who may have bought one eventually and brought in some people of more modest means who needed a way to work out. That was great for Peloton stock which hit a 52-week high of $171.09 roughly a year ago.

And, then, the bottom fell out.

A woman works out on a Peloton tread.

Peloton Handled the Inevitable Poorly

The return to the gym as well as the pull-forward of its demand made a slowdown inevitable for Peloton.  Management, however, compounded the issue by making a series of questionable moves, then being hit by one it could not control:

  • The company botched the recall of its Peloton Tread treadmill after a child died because of one.
  • Amid flagging demand, Peloton cut the price of its signature price a move that may have also undercut its positioning as a luxury product.
  • The company has not added a major new product to its line aside from the treadmill while rivals offer connected rowing machines and weight-based workout devices.

And, of course, the company got a burst of publicity when Chris Noth's character died on a Peloton in episode one of the "Sex and the City" reboot, Peloton actually played that well by creating a tongue-in-cheek commercial starring Noth, roughly a few minutes before a bunch of women accused him of inappropriate behavior.

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It was a tough period, which the company addressed in its first-quarter letter to shareholders:

As discussed last quarter, we anticipated fiscal 2022 would be a very challenging year to forecast, given unusual year-ago comparisons, demand uncertainty amidst reopening
economies, and widely-reported supply chain constraints and commodity cost pressures. Although we are pleased to have delivered first-quarter results that modestly exceeded our guidance, a softer than anticipated start to Q2 and challenged visibility into our near-term operating performance is leading us to recalibrate our fiscal year outlook.

That's a very nice way to explain why the company lost $376 million in Q1 after making $69.3 million in the year-ago period.

And, the bad news kept on coming. Peloton also revealed that it expects to lose $325-$350 million in Q2 and $425-475 million for the full 2022. On the positive side, those forecasts do suggest a profitable second half of the year,

Peloton (Maybe) Just Made Another Mistake

Peloton lowered its price to make its bikes affordable for more people. And, while you can argue that being an aspirational luxury brand makes the company's products appealing, at least there was a philosophy behind the move.

We continue to believe price remains a barrier to purchase for many consumers and this is our latest step to improve the accessibility of our platform. We are pleased with the consumer response to our new price, which quickly converted many consumers already in our purchase funnel and is helping to generate a significant number of new leads. Younger and less affluent consumers continue to represent our fastest growing demographic, yet among non-Members, there remains a lingering perception that Peloton is a luxury item. We intend to amplify the platform’s value proposition via increased marketing ahead of and during our key seasonal selling period.

A lower price may equal more customers, which makes it a tad perplexing that the company just, very quietly, de facto raised its prices. The Peloton website now has a small banner that says that free delivery and setup with end on January 30. That means that anyone who buys a Peloton Bike after that date will pay an extra $250.

This move could pull some orders forward into January but that will come at the expense of February and beyond.

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