- Peloton has laid off thousands of workers this year, replaced its CEO, and lost several top execs.
- Peloton was a Wall Street darling during the pandemic, with a market cap of around $50 billion.
- Despite mounting challenges, CEO Barry McCarthy said he’s optimistic about Peloton’s future.
In the height of the pandemic, Peloton was on top of the world. Its stock pushed $171 per share and its market cap hovered around $50 billion.
Now, just this year, the company has laid off more than 5,000 staff members, has seen four top executives depart, and reportedly is considering a potential sale to the likes of Amazon, Apple, or Nike. Peloton’s stock has been trading well below the IPO price of $29 per share, at one point dropping as low as $6.66.
It’s a stunning reversal for a company once at the top of the connected-fitness food chain, and it’s the result of a culmination of factors, including the fading popularity of at-home fitness and a mishandled logistics operation.
Here’s how Peloton got its start and became a fitness world darling, and how it crashed and burned.
Peloton was founded in 2012 by a group of ex-IAC employees
John Foley, Hisao Kushi, Tom Cortese, and Graham Stanton — four of Peloton’s five cofounders — met working at media and internet company IAC. The fifth cofounder, Yony Feng, met the group through his roommate who worked at IAC.
Foley has said that the vision for the company was his, but that his four cofounders “took it, ran with it, and built it while I was gone” raising money, he told Fortune in 2021.
Prior to founding Peloton, Foley was president at Barnes & Noble, overseeing its e-commerce business.
The early version of its bike was ‘janky,’ and it struggled to find investors
Foley is a self-professed “boutique fitness addict,” as well as an avid cyclist. But the early versions of the Peloton bike didn’t look like something you’d find in a high-end fitness studio, the company’s first instructor, Jenn Sherman, told Fortune.
“They had this little tiny corner of the office that was sectioned off by black velvet curtains. There was a camera on a tripod sticking through a circle people literally cut out of the curtain. There was a janky, broken bike in there — the instructor bike was like this rusted piece of crap. It was ridiculous,” she said.
Still, Sherman signed on. Meanwhile, Foley was on the road for the first three years, pitching what he told Insider in 2018 was as many as 400 investors.
“I got 400 ‘nos,'” he said at the time. “The worst part is that we’re not talking about 400 individual pitches. A lot of people would want me to come back four or five times and have me meet more partners and pitch again. I would say that I’ve been turned down maybe five or six thousand times.”
Still, the company scraped together funding from more than 200 angel investors and put its first bike on Kickstarter in 2013 for an “early bird” price of $1,500.
Peloton quickly developed a cult following
Peloton began shipping bikes in 2014, with Foley and the other cofounders showing off how they worked at pop-up stores inside shopping centers.
But it didn’t take long for the company to develop a cult following, thanks in large part to its roster of high-wattage instructors. When the company opened its own studio in New York City, owners of the company’s $2,000 bike would make a pilgrimage to Manhattan in order to take a live class with their favorite instructor.
Eventually, big-name investors came calling. “I would say that it took about five years for the really smart money to start getting involved,” Foley told Insider in 2018. “When Mary Meeker is calling you to say, ‘Hey, I want to invest’ — that’s pretty cool.”
That year, Peloton raised $550 million in venture capital funding at a valuation of $4.1 billion, according to Pitchbook.
Peloton expanded its offerings as spinning faded in popularity
Peloton introduced its second product, a $4,000 treadmill called the Peloton Tread, in 2018, and added new types of classes, like high-intensity interval training and yoga, to keep users engaged or get new customers to sign onto a digital subscription, no equipment required.
By 2019, the company had sold 577,000 bikes and treadmills.
In August of that year, Peloton filed for an initial public offering, revealing it had over 500,000 paying subscribers, but also spiraling losses from major investments in marketing and licensing music for its classes.
Peloton went public on September 26, 2019 in what was at the time the third-worst trading debut for a major IPO since the financial crisis.
Peloton’s stock plummeted following its 2019 holiday ad
Ahead of the holidays in 2019, Peloton made what was seen as a major public misstep with its infamous “Peloton wife” ad.
The ad, featuring a woman whose husband gifts her a Peloton bike for Christmas, was viewed as being sexist and playing into outdated standards of beauty. Public outrage over the ad sent Peloton’s stock plunging 9%, wiping out $942 million in market value in a single day.
But Peloton stood by the commercial, issuing a statement saying it was “disappointed” by how people had “misinterpreted” the ad.
The pandemic became a major boon for Peloton’s business
Then, in early 2020, the pandemic hit. Suddenly stuck inside, people turned to at-home fitness and found connection in Peloton’s streamed workout classes. The company’s share price took off.
By May 2020, Peloton reported a 66% increase in sales and a 94% increase in subscribers. In September of that year, Peloton said that it had had its first profitable quarter, with sales spiking 172% since the same quarter the year prior and revenue rising to $607 million.
But the unexpected uptick in demand showed the cracks in Peloton’s logistics operation. Delivery times for new equipment became longer and longer, and Peloton’s typically diehard fans began expressing their frustration online.
Then, some customers began experiencing issues with their bikes where pedals snapped off mid-ride. The company took weeks or months to make repairs, further frustrating users. After 120 reports of bikes breaking and 16 reports of customers getting injured, the company issued a recall affecting 30,000 bikes.
Still, 2020 was all around a stellar year for Peloton that included debuting new, higher-end versions of the bike and treadmill and inking a multi-year deal with Beyoncé. A year after the “Peloton wife” ad, the company’s market value had hit $34 billion.
In early 2021, Peloton reported its first-ever billion-dollar quarter, driven by holiday sales and sustained demand for at-home fitness as the pandemic raged on. Foley pledged to manufacture “tens of millions” of treadmills and bikes to keep up with surging sales and spend $100 million to speed up deliveries hampered by port congestion.
Peloton had to issue a treadmill recall following a child’s death
In an effort to make the treadmill safer, Peloton also made a change that resulted in it becoming unusable unless users paid $39 per month. Following customer outrage, the company said it would work on a fix.
As the pandemic began to recede, so did Peloton’s popularity
As the nation continued to move toward reopening — and returning to the gym and fitness studios — Peloton’s business took a punch. The company’s stock dropped 34% following its fiscal first-quarter earnings in November, which included a dismal outlook for the months ahead.
“It is clear that we underestimated the reopening impact on our company and the overall industry,” Foley said in a call with shareholders.
Peloton was also being chased by rivals like Echelon and iFit Health, which offer similar, cheaper products. Peloton filed a lawsuit against them in November, accusing them of patent infringement.
In the meantime, Peloton had been taking reputational hits. A hiring freeze set in, and Black employees voiced concerns over their pay compared with the industry standard. A character in the “Sex and the City” reboot died after using his bike, and then the same thing happened to a “Billions”character soon after. And in December, Foley threw a lavish holiday party as the company’s stock tanked.
By January, the company was discussing layoffs, reportedly pausing production of new equipment, and halting plans to open a new $400 million factory. Employees told Insider the company’s warehouses were filled with excess bikes.
Peloton began laying off employees, replaced Foley, and eyed a potential acquisition
In February, The Wall Street Journal reported that Amazon was eyeing Peloton as a potential acquisition — soon after, the Financial Times reported that Nike was considering the same. Wall Street analysts posited that Apple would be another natural fit as the new owner of Peloton.
The possibility of a sale sent Peloton’s stock jumping 25%.
Days later, Foley announced that he would step down as Peloton’s CEO and that the company was slashing 2,800 jobs, about 20% of its workforce. The company said that the fired employees would receive a free year’s subscription to the platform, along with a “meaningful cash severance allotment” and other benefits. Its roster of instructors would not be impacted by the layoffs.
During a conference call following the company’s second-quarter earnings, Foley said was taking responsibility for what happened at Peloton.
“We’ve made missteps along the way. To meet market demand, we scaled our operations too rapidly. And we overinvested in certain areas of our business,” he said.
“We own this. I own this. And we’re holding ourselves accountable,” he added.
Experts told Insider that the company fell prey to the “bullwhip effect,” spending big on logistics while expecting that demand would remain high — when demand cooled, Peloton was left with costly supply chain operations that now require a major overhaul.
Barry McCarthy, the former chief financial officer of Spotify and Netflix, replaced Foley as CEO. In a leaked memo to employees, McCarthy called the layoffs “a bitter pill” but said that the company needed to accept “the world as it is, not as we want it to be if we’re going to be successful.”
“Now that the reset button has been pushed, the challenge ahead of us is this…… do we squander the opportunity in front of us or do we engineer the great comeback story of the post-Covid era?” he wrote. “I’m here for the comeback story.”
Foley severed his remaining ties to the company
July brought news of 570 additional job cuts, and in August, the company announced yet another round of layoffs, slashing roughly 800 customer-service and distribution team members — and raising prices on some equipment.
In September, Foley stepped down as executive chairman. Cofounder and Chief Legal Officer Hisao Kushi and Chief Commercial Officer Kevin Cornils also left the company.
In a statement, Foley said: “Now it is time for me to start a new professional chapter. I have passion for building companies and creating great teams, and I am excited to do that again in a new space. I am leaving the company in good hands.” Lead independent director Karen Boone took over as chair.
Then came the departure of another top executive: The New York Times’ DealBook newsletter reported that Chief Marketing Officer Dara Treseder would exit the company in early October. Treseder was instrumental in helping Peloton double its membership, which has reached more than 6.9 million, a company spokesperson told DealBook.
Peloton made another round of cuts in October, but McCarthy said he’s ‘optimistic about our future’
The report revealed that Peloton has eliminated more jobs than was previously known. About 600 additional employees have left the company since June through factors like retail store closings and attrition. That brings Peloton’s total cuts this year to over 5,200.
The Journal also reported that McCarthy said the company has only six months to turn things around, which McCarthy later denied in a memo to employees published by Bloomberg. McCarthy said his comments were taken out of context and that he’s never felt more optimistic about the company’s future.
“There is no ticking clock on our performance and even if there was, the business is performing well and making steady progress toward our year-end goal of break-even cash flow,” he said.
Peloton has indeed made several changes in the past few months that could help re-energize sales: it launched its long-awaited rowing machine, started selling its gear on Amazon, and inked new deals with Dick’s Sporting Goods and Hilton in hopes of attracting new customers.