At the height of the pandemic, as Wall Street banks struggled to ease burnout among their overworked junior staff, some launched a gift that symbolized that era: Peloton bikes.
This week, Peloton, maker of high-end bikes and treadmills with attached big screens that allow people to take streamed video classes from the comfort of their own homes, was forced to turn to some of the most famous names on the street for help to keep in the saddle.
The company, which has helped millions burn calories and destress during lockdown but has become one of the biggest victims in the stock markets after the crisis, announced on Tuesday that it had taken out a $750 million line of credit ( 723 million euros) from Goldmans Sachs and JP has secured Morgan to protect its balance sheet until it can stop the cash flow.
It came as the company reported a much larger-than-expected loss of $757 million for the three months ended March, its third fiscal quarter. But the big downside for investors was the fact that they slumped nearly $747 million in cash during that period, the equivalent of the previous two quarters combined, as sales fell 23 percent year over year and bikes and treadmills went into inventory stacked.
Peloton was sitting on $1.41 billion worth of inventory at the end of March — up 50 percent year-on-year.
The company, a cautionary tale of corporate hubris, missteps and an unfounded belief that the Covid blessing is the new normal, also drove analysts’ fourth-quarter revenue forecasts down. Its shares plunged to a record low this week, down as much as 93 percent from the all-time high of $163 set in January 2021.
Peloton was co-founded in 2013 by John Foley, a cycling enthusiast and former e-commerce executive at bookseller Barnes & Noble, who took his idea to a crowdfunding website and raised over $307,332.
The company went public in September 2019 in an initial public offering (IPO) that raised $1.2 billion and valued the digital fitness company at over $8 billion. While Peloton had one of the worst market debuts of the year — down 11 percent on the first day of trading — the stock rose months later as Covid-related shutdowns spurred sales of bikes, treadmills and online fitness subscriptions.
The company’s market value increased more than 700 percent to $49 billion in nine months from March 2020, which put John Foley, its CEO, on the Forbes billionaires list in April 2021 with a net worth of $1.5 billion brought.
But by that time cracks had already formed. In November 2020, Peloton warned that high demand and supply chain constraints were causing long delays in customers sourcing ordered bikes.
Foley was forced into an embarrassing recall of tens of thousands of Peloton treadmills in May last year, almost a month after it was ordered to do so by US consumer product safety agencies after its Thread+ equipment caused dozens of injuries and the death of a child . The CEO admitted he “made a mistake” in deflecting the request.
Then there was the issue of runaway spending as the company raced to keep up with demand at all costs – and earlier this year reported on the company taking pride in taking back bikes with even a scratch on unboxing and rust on delivery Machine manufacturing in Taiwan before shipping to customers.
Foley resigned as CEO in early February, weeks after activist investor Blackwells Capital called for the home fitness company to fire him.
“To meet market demand, we scaled our operations too quickly and overinvested in some areas of our business,” he said at the time.
“We own this. I own this and we are responsible for it.” But not enough to make him dread the idea of becoming CEO of the company.
Barry McCarthy, Peloton’s new chief executive three months ago, opened a letter to shareholders this week saying, “Turnarounds are hard work. It’s intellectually challenging, emotionally draining, physically demanding, and all-consuming. It’s a full contact sport.”
Speaking to analysts, McCarthy, a former chief financial officer at Spotify and Netflix, said that of the many surprises he’s encountered since committing to stabilize the ship, the biggest has been its cash flow situation.
McCarthy’s plan focuses on cutting costs, diversifying from a hardware vendor to a rental program, and expanding distribution to third-party vendors.
The stock price has cautiously rebounded from its lows over the past few days as analysts take a fresh look at Peloton’s prospects.
“We have argued that the [total addressable market] for hardware is tremendous, and that the argument that ‘anyone who wants a peloton already has one’ doesn’t take price elasticity or international sales into account,” Bernstein analyst Aneesha Sherman said in a note.
Currently, Peloton bikes are only officially available in the US, UK, Canada, Australia and Germany.
Expanding internationally is easier said and done. At the moment, the company’s machines must be installed upon delivery. McCarthy spoke to analysts on the call about redesigning his machines so they can be delivered by FedEx. That costs time and money. And it will also erase any remaining shine of exclusivity around the products.
But first he needs to convince the markets that he can rebalance the inventory the company is sitting on — and put it back in a position where it’s bleeding the money.