Peloton: Not Dead Yet
It’s been quite the ride for Peloton. From a high flying COVID stock to a bankruptcy risk.
In the shareholder letter, Barry laid out some of the dramatic changes that he’s led so far and the vision for the next year. But are these changes enough to save Peloton? Let’s dive in.
Year One
- rebuilt the executive team with five new hires, including a new CEO
- restructured operations, reducing employee headcount from 9k to nearly 4k
- outsourced manufacturing of Connected Fitness Units (CFUs)
- outsourced last mile delivery and restructured customer support
- restructured Peloton’s apparel and accessories businesses
- raised $750 million in bank debt
- reduced gross inventory, excluding reserves, by $580 million from Q2FY22 to Q2FY23
- reduced annualized run rate expenses from Q2FY22 to Q2FY23 by $830 million
- resolved the CPSC investigation related to Tread+ and all major IP litigation matters with industry competitors
- launched Row and Guide and related content
- launched Fitness as a Service (FaaS) and Peloton Certified Refurbished
- launched third party sales through Amazon and Dick’s Sporting Goods
- restored and expanded live Studio classes in NY and London
Year Two
- return to YOY revenue growth
- reach sustained positive adjusted EBITDA
- reach sustained cash flow breakeven
- attract at least 1 million prospective Members to trial the Peloton App
- restore international growth
- expand corporate wellness and other commercial partnerships
- continue reducing inventory
- continue restructuring retail store footprint
- restructure middle mile warehouses and optimize last mile delivery network
- reach cash flow breakeven with Precor
- significantly improve Member support and the overall CFU delivery experience
- sell Ohio manufacturing facility
Growth: At What Cost?
One of the themes of this earnings report was that the bleeding has stopped, now it’s time to get back to growth. Barry tried to find a balance during the call, maintaining his focus on being at least cashflow neutral AND returning to growth. I like the FaaS experiment they are running and it could be a future source of major growth. Yet it takes a lot months to pay back that high of CAC (bike, marketing, etc…), especially with significantly higher churn. Peloton is still in a precarious financial spot and balancing growth won’t necessarily be easy.
I think Barry’s quote of “Still figuring it out is the long and the short answer.” on international expansion is a great way to explain Peloton, not just in their international ambitions either.
Was the Business Irreparably Damaged?
This is the question that I keep coming back to. During the chaos, was the brand irreparably damaged? Churn hasn’t shown any crazy inflections despite significant price increases, which is a very good sign. Peloton stopped reporting engagement metrics, which isn’t a great sign. I still don’t think we have any clear answer to this. Barry did what he needed to save the business, but in doing so he might have only saved the business on it’s face
In The End
What’s the end result of all this? I think it’s probably a slow stabilization until an acquisition comes along.
I don’t have a ton of faith in Peloton now, but I still find them a fascinating company and they are trending in a better direction. I’ll keep holding my shares, but not adding anymore. I admittedly don’t have a great read for this stock, but I’ll keep slowly watching.
