Will Peloton Survive?

Peloton has had a rough beginning in 2022. While the pandemic was a tailwind for the company as it increased demand for its in-home innovative exercise equipment, the company appears to be on the verge of falling off the cliff. CNBC recently obtained internal documents indicating that the company plans to take extreme measures to manage costs and waning demand. These measures allegedly include halting production of its bikes from February through March. Production of its Peloton’s premium “Plus” model, introduced to much fanfare in 2020, will be stopped until June.

Superficially, some observers believe that Peloton’s decline began in early December when a prominent character on the Sex and The City reboot suffered a fatal coronary after exercising on a Peloton bike. That startling scene was so damaging to the brand that the company’s stock plummeted 11 percent after the pilot episode aired on HBO. Particularly eerie were shots of the Peloton bike collecting dust near the master bathroom immediately following the character’s death. This scene will undoubtedly become a cautionary tale at Harvard Business School about the dangers of an incredibly poorly executed product placement.

But as disastrous as this incident was to the Peloton brand, it would be a distraction to view this as fatal. Numerous companies have had the occasional marketing faux pas occur, but these episodes did not tank the brand. So one has to look deeper for the underlying issues that are hurting impact.

Financially, the company has been in a quagmire. Last week, Peloton reported preliminary FY Q222 revenue results of approximately $1.14 billion versus previously reported guidance of $1.1 billion to $1.2 billion. The company reported adjusted EBITDA in the -$270 million to -$260 million range, which was better than the previously reported guidance of -$350 million to -$325 million. Despite beating Wall Street's expectations, the stock came down 20% when the media stated that the company was reducing its sales and marketing staff by 40% and closing 15 retail stores (the company's CEO, John Foley, denied this latter claim).

Slowing post-pandemic demand was not anticipated

Peloton’s salad days of exuberant demand, when customers had to wait upwards of sixty days to get their order during the height of the pandemic, appear to be over. Clearly, there have been warning signs. Peloton reported weaker-than-expected results for its fiscal year Q1 2022 sales last November and largely attributed it to more people going back to the gym. It’s difficult to understand how Peloton management could not have anticipated that demand for its products would necessarily suffer as more people return to gyms. Industry reports clearly show that gym foot traffic in the United States is returning to 2019 levels. 

Peloton’s premium price points and subscription model are increasingly tough to swallow for consumers

In addition to slowing demand, there is a growing mountain of evidence that the market is flooded with too much Peloton product. The online resale market for Peloton products is swamped with used bikes selling at a significant discount. The logical explanation for this is that existing owners are anxious to sell their Peloton bikes and eliminate the costly subscription fees ($39 per month for their All-Access Membership plan) as they migrate back to traditional gyms. What appeared to be a cool way to stay fit during the pandemic lockdowns for many consumers may now appear to be prohibitively costly compared to a gym membership.

Then there’s the cost of the equipment itself. Peloton bike price points skew toward the high end of the stationary bike market with “starting” prices of $1,495 for its basic model and $2,495 for its “+” model, not including the monthly subscription fee for its well-known live instructor classes. True, Peloton tries to ease the cost of these bikes with instant financing programs. Still, some consumers may regret being saddled with owing money on a Peloton (similar to a car), especially when the used Peloton market drags down bike values.

The Apple Fitness+ effect

 Peloton may also be feeling the pain that Apple inflicted when it announced its Apple Fitness+ service in late 2020. Apple Fitness+ is the first fitness and wellness service designed entirely around its popular Apple Watch family. Apple has been steadily adding new workouts to its Fitness+ program, many of which feature guests such as Rebel Wilson and Bernice A. King and offer workout-appropriate music from Ed Sheeran, Pharrell Williams, and the Beatles. 

At an annual subscription fee of just $80 per year and with Apple Watch price points that start as low as $399 for its new Series 7 models, owning a Peloton begins to look like a much more expensive proposition. Of course, Peloton might argue that making a direct exercise experience comparison between their bike and Apple Fitness+ is not fair due to its lack of the live instructor component. Still, the chasm between the two is unassailable for many cost-focused consumers from an affordability standpoint.

Some closing thoughts 

While much of this is terrible news for Peloton, the picture isn’t entirely gloomy. Bad product placement aside, the company has built a powerful brand and a passionate following. The challenge for Peloton is how to overcome the inevitable return of people to gyms. Planet Fitness recently reported a dramatically increased number of visitors to their nationwide network of 2,000 gyms.

While service offerings like Apple Fitness+ are a headwind for Peloton, the company’s chief challenge, in my view, is the lack of new products. The company is reportedly working on new offerings in 2022, but it’s not happening fast enough. The company has announced its Peloton Guide, it's first sub-$500 device that utilizes an AI-powered camera that monitors strength training. That’s a step in the right direction, but the product isn’t the alternative the admittedly pricey Tonal is.

The bottom line is that Peloton has few options. One tantalizing scenario making the cyberspace rounds is that Apple could be an interested suitor. Tim Cook has publicly stated that he wants Apple to make its most significant world contribution with its products and services in the health and wellness areas. Apple does have the design talent, the deep pockets, and brand strength to make such an acquisition plausible and practical. Peloton and Apple also have comparable innovation cultures, making a potential combination appealing.

Regardless, it would be a shame to see Peloton fade into thin air as the company has made an enormous contribution to the “smart fitness” category. It’s not exactly clear what the future holds for Peloton, but I’m sure the deceased Mr. Big character from Sex and The City is looking down from that great home gym in the sky, hoping that the company lives on. 

Mark Vena is the CEO and Principal Analyst at SmartTech Research based in Silicon Valley. As a technology industry veteran for over 25 years, Mark covers many consumer tech topics, including PCs, smartphones, smart home, connected health, security, PC and console gaming, and streaming entertainment solutions. Mark has held senior marketing and business leadership positions at Compaq, Dell, Alienware, Synaptics, Sling Media and Neato Robotics. Mark has appeared on CNBC, NBC News, ABC News, Business Today, The Discovery Channel and other media outlets. Mark’s analysis and commentary have appeared on Forbes.com and other well-known business news and research sites. His comments about the consumer tech space have repeatedly appeared in The Wall Street Journal, The New York Times, USA Today, TechNewsWorld and other news publications.

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