Peloton Goes to the Junk Pile

Barry McCarthy, Peloton Interactive Inc. (NASDAQ: PTON) chief executive officer, continues to say the bike and rowing machine company will turn the corner or has begun to do so. It is not that he is dodging the truth. The fact is that there is no evidence to show he is correct. Peloton’s situation worsened as it disclosed earnings for the most recent quarter. Investors trashed the company’s shares, then they recovered slightly on comments by McCarthy that the figure showed Peloton was “making significant progress.” Not so.

McCarthy’s description of a healthy company is one that is “financially stable” and has “breakeven or better cash flow.” Why the goal is a company that breaks even is anyone’s guess.

The numbers are the numbers, no matter how McCarthy wants to spin them. Revenue dropped 23% year over year to $617 million. Peloton lost $409 million. And the company forecasted it would take a bath in the current quarter, which for retailers, is the most important period of the year.

McCarthy’s letter described Peloton’s situation in great detail. The best sentence from the letter was this: “But the green shoots are numerous and undeniable.” He must be among the few people who see this. Peloton’s shares are down 75% this year, and most of that has occurred while McCarthy has been in his job.
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Peloton is painted into a corner. The most oft-mentioned problem is that exercise bikes were popular when the COVID-19 pandemic was at its most dangerous. People stopped going to gyms. Fewer people dying has helped gym traffic rebound.
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Peloton’s real problem is less obvious than gym memberships. Go to the exercise bike section of Amazon and look at the dozens of options. Most are much less expensive than Peloton. To the untrained eye, the $1,445 Original Peloton Bike does not look like a better product than several others available, all at lower prices.
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Peloton’s brand may have mattered at one point. The brand may have gotten a premium price for its products. The brand has taken a bad beating, both in the press and on Wall Street, in the past year. The perception of premium is gone.