Are the Wheels Falling Off for Peloton?
After a year of explosive growth, the company is beginning to slow down
25%: The percentage fall in Peloton’s share price year-to-date, not accounting for the further losses that occurred after the company’s recent Q4 report, which failed to meet expectations.
A treadmill runner typically struggles in the early minutes of the run, then kicks into gear, enjoying a sustained period of high-performance before hitting the wall and eventually coming to a stop. It seems this trajectory also applies to the trendiest of treadmill makers, Peloton. On August 26, the company shared its Q4 earnings for 2021, and the data showed a dramatic tail-off in growth compared to the previous year. The numbers show the company may have enjoyed its high-performance period and is now starting to feel the burn. The announcement spooked shareholders, causing shares to tumble by as much as 15% before rebounding to end the day 6% down. The outlook was bad enough that Peloton has lowered its expectations for Q1 of 2022.
While some of the company’s numbers are positive — its revenue of $936.9 million marginally beat expectations, and it ended the year with 2.33 million connected fitness subscribers, a 114% increase from a previous year — many of the other data points are cause for serious concern. Of note, loss per share was $1.05, over double the anticipated 0.45 cents, and total losses were over $300 million. A significant contributor is the mounting costs associated with the treadmill recall in May after the machines were linked to a series of accidents and a death. The company is only now releasing an updated version of the product, and it doesn’t expect this to halt the slide as the treadmills are far less profitable than the bikes. Most concerning is the increasing churn rate. At one point last year, it was at a record low of 0.31, but now, it’s rising to almost 0.80. The company also reported that monthly workouts per connected subscribers had fallen. Together, these two numbers make bad reading.