Peloton gets cut to size
picture this: you begin the year with a fitness resolution. to slim down and shed some pounds. your ideal target? maybe 10% of your present weight. maybe 20. but what would you say to around 66%? a bit over the top right? well, unfortunately that’s exactly the position Peloton finds itself in. it began 2021 with a $45 billion market cap which is now down to around $15 billion.
its stock was trading at around $90 per share on November 3, a day prior to its quarterly earnings report declaration. but a dismal showing saw it slide to around $50/share by November 8, including a 35% drop on November 5. what has its investors sweating?
one of the main factors behind Peloton’s rapid rise was the spike in its demand among people who wanted to stay fit at home during Covid-19 containment measures. once the lockdowns were lifted, many preferred swapping out its equipment in favour of a return to gymnasiums and other fitness activities. enough of them stayed on with Peloton for it to beat market estimates for both revenue and earnings for the reported quarter. but guidance of a weak showing for the quarters ahead saw investors quickly head for the exit.
overall, Peloton has racked up net losses of $634 million over the past year and nearly $1.4 billion in negative free cash flow. that’s not abnormal in the business world, but warrants a relook at its valuation.
Peloton is also recovering from the major recall of over 125,000 treadmills after a unit of the model caused the death of a user. it had to issue complete refunds, and saw its valuation take a hit of $4.1 billion back then. it also earned a fair bit of bad PR after having initially rejected reports over safety concerns before being forced into the recall a month later.
following the recent record single-day drop of 35% in its stock price, Peloton also froze its hiring activity. this further signals that the company expects a slowdown in the coming months.
Peloton’s rivals are not just traditional gyms and the great outdoors, but also other at-home fitness service providers such as Tonal and Hydrow which have followed in its footsteps. will it manage to keep its lead or fall behind in a race it once ran virtually alone?