This Is Why Peloton Will Never Recover

The Wall Street Journal reports that deeply troubled exercise equipment company Peloton has begun to raise money. It wants to bring in cash as it tries to recover from missteps and sales fueled by the COVID-19 pandemic. Peloton management, the story says, would like to sell 15% to 20% of the company. A new investor or set of investors will be wasting their money. Even if they can buy shares at a discount, Peloton’s business model is so flawed that the company cannot recover.
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Peloton’s shares trade near $17, down from a 52-week high of $129.70. The company dumped founder John Foley and replaced him with Barry McCarthy, who had held senior positions at Spotify and Netflix. Notably, each of those companies’ businesses is deeply wounded. McCarthy disappointed many investors when he said the Peloton was not for sale.
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Peloton faces one of the largest challenges any company can face. People no longer want to buy its products. They were useful to many people with money when the COVID-19 pandemic kept them out of gyms. Most people can return to those gyms if they want to. Also, several companies have decided that some consumers would still like products and services similar to Peloton’s but at a much lower price.
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Peloton’s most recent quarterly results were ugly. It is no longer a growth company. Revenue for the period was $1.14 billion, compared to $1.06 billion in the same quarter the year before. It lost $439 million, compared to a profit of $60 million the year before. Cash on hand was $1.6 billion. Forecasts for the current quarter and balance of the year were no better. The company also has cut staff.
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There is a small industry of Peloton alternatives. Each offers similar value at a much lower price. These include products from NordicTrack and Concept2. The sales pitch is simple. Why pay more when a less expensive product provides essentially the same experience?

Peloton has not explained to investors how it can recover. Probably, that is because it cannot.