CAPITALI$M 101
Peloton went from a pandemic-era success story worth $50 billion to laying off more than 4,000 workers. Here's how the company's meteoric rise turned into an equally swift fall.Avery Hartmans
Tue, September 13, 2022
John Smith/VIEWpress
Peloton has laid off thousands of workers this year and its former CEO, cofounder John Foley, has cut ties with the company.
It's a stunning turnaround for a company that became a Wall Street darling during the pandemic.
But increased competition and the return to gyms has hurt Peloton's business in recent months.
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 4,000 staff members, replaced its CEO, 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 $8.22.
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
Peloton's five cofounders.Peloton
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 last year.
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
Jen Van Santvoord rides her Peloton exercise bike at her home on April 7, 2020.Ezra Shaw/Getty Images
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 last year.
"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
Instructor Hannah Corbin teaching a live class at Peloton's Manhattan studio.Peloton
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 unveiled the Tread at the 2018 Consumer Electronics Show.Avery Hartmans/Business Insider
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
A still from the "Peloton wife" ad.Peloton
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
Cari Gundee rides her Peloton exercise bike at her home on April 06, 2020 in San Anselmo, California.Ezra Shaw/Getty Images
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
A user runs on the Peloton Tread.Michael Loccisano/Getty Images
But in March, tragedy struck when a child was fatally injured in an accident with a Peloton treadmill. Shares dipped 4% following the news and regulators urged a recall.
Foley initially pushed back, calling the warnings "inaccurate and misleading," but by May, the company announced a recall of the higher-end Tread+.
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
Peloton's New York City studio.John Smith/VIEWpress
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 to 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 was eyeing a potential acquisition
An instructor during a Peloton class.Scott Heins/Getty Images
In February, The Wall Street Journal reported that Amazon may be 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 will 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's Emma Cosgrove 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 needs 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."
Now Foley has severed his remaining ties to the company
Peloton co-founder John Foley
Mark Lennihan/AP
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, Peloton announced that Foley had stepped down as executive chairman and that cofounder and Chief Legal Officer Hisao Kushi also was leaving 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 takes over as chair.
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, Peloton announced that Foley had stepped down as executive chairman and that cofounder and Chief Legal Officer Hisao Kushi also was leaving 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 takes over as chair.
Peloton Co-Founder John Foley is out in leadership shakeup
Peloton Co-Founder John Foley is stepping away from the company he founded.
The embattled founder will leave the company's board of directors, Peloton stated Monday. The decision comes months after Peloton hired former Spotify exec Barry McCarthy as CEO.
"The company has accepted the resignations of John Foley as Executive Chair and Hisao Kushi as Chief Legal Officer, effective September 12, 2022 and October 3, 2022, respectively," a press release stated.
Kushi, also a co-founder, will be replaced by Tammy Albarrán, who most recently served as Uber's chief deputy general counsel and deputy corporate secretary.
A source told Yahoo Finance that Foley — who along with his wife and other insiders controls close to 60% of Peloton's voting shares — may sell his stake in the company after a cooling-off period.
"As I reflect on the journey Peloton has been on since we founded it, I am so proud of what we have built together," Foley stated. "From day one, the incredible talent we've had on our team and the dedication, hard work, and creativity of every Peloton employee are what got us to where we are today. We founded the company because we wanted to make fitness and wellness convenient, fun, and effective. Because of the work of thousands of people, we've done that."
Peloton was founded in 2012 after Foley, a cycle enthusiast, raised over $300,000 in capital to get his exercise startup off the ground. He co-founded the athletic equipment company alongside Graham Stanton, Kushi, Yony Feng, and Tom Cortese. The company IPO'd in September 2019.
Peloton stock, once a pandemic success story, is near all-time lows. Last year, the company temporarily halted production of its at-home fitness products as it looked to cut costs amid a "significant reduction" in consumer demand. Peloton told employees last month it was cutting 800 jobs, closing retail stores, and raising prices.
Peloton confirmed in July that it would be outsourcing production of its bikes and treadmills to a third party, and last month the company announced another major strategy shift as it began to sell select equipment and apparel through Amazon.
This is breaking news and the post may be updated.
Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.
Peloton Founders Leaving Fitness Company in Latest Shake-Up
Ian King
Mon, September 12, 2022 at 3:09 PM·
(Bloomberg) -- Peloton Interactive Inc. Executive Chairman and co-founder John Foley is stepping down from the fitness company as part of a leadership shake-up, extending the turbulence at a business trying to pull out of a deep slump.
Foley, who helped start Peloton in 2012 and served as chief executive officer for 10 years, is resigning effective Monday, the company said in a statement. Foley took the executive chairman role in February when he handed the reins to CEO Barry McCarthy, a veteran of Spotify Technology SA and Netflix Inc.
Chief Legal Officer Hisao Kushi, another co-founder, is also headed for the exits. He’ll be replaced in that role by Tammy Albarran, who Peloton recruited from Uber Technologies Inc. The chairman role, meanwhile, will be filled by Karen Boone, a former Restoration Hardware executive who currently serves as lead independent director.
Peloton investors initially applauded the changes, sending the shares up as much as 5.3% to $11.64 in extended trading on Monday. But the rally soon evaporated, with the stock declining more than 2%.
The reshuffling extends a year of upheaval at New York-based Peloton, which thrived in the early days of the pandemic but is now suffering from declining sales and mounting losses. Its shares are down about 90% over the past year, and the company has struggled to work through a glut of inventory.
As part of a turnaround plan, McCarthy has cut thousands of jobs and offloaded operations to third-party providers. But Peloton’s quarterly report in August signaled that his comeback effort has a long way to go.
McCarthy’s goal is to make Peloton cash-flow positive in the second half of the coming fiscal year. “We continue to make steady progress, but we still have work to do,” he said last month, while acknowledging that the company’s financial performance may cause some to doubt the “viability of the business.”
With Peloton’s longtime CEO now out of the picture, McCarthy may have a freer hand to make changes. The executive has said the company should prioritize its digital offering over hardware and is exploring allowing subscribers to beam content from their smartphones to non-Peloton fitness equipment.
Separately, Chief Commercial Officer Kevin Cornils is also leaving Peloton and won’t be replaced. Some of Cornils’s responsibilities will be assumed by Dion Sanders as he takes the role of chief emerging business officer, according to an internal memo from McCarthy reviewed by Bloomberg. Chief Content Officer Jen Cotter will assume control of apparel and accessories, showing that the company remains committed to that market.
Albarran will take over Peloton’s legal operations on Oct. 3. She helped oversee a corporate makeover at Uber, which set out to change its image in 2017 after its hard-charging style led to scandals and a strained relationship with drivers.
Peloton looks to draw on the experience of Albarran and Boone to “help move the company forward into our next chapter of growth,” McCarthy said.
Foley said he plans to build a business “in a new space” after leaving the company. The executive helped turn Peloton into an iconic fitness brand with a loyal following, but was criticized for not forecasting a sharp downturn in demand for its exercise bikes.
Some Peloton investors also had hoped that Foley -- and then McCarthy -- would consider selling the company. But no suitor emerged, and McCarthy has said that he didn’t take the CEO job to oversee a sale.
Mon, September 12, 2022 at 3:09 PM·
(Bloomberg) -- Peloton Interactive Inc. Executive Chairman and co-founder John Foley is stepping down from the fitness company as part of a leadership shake-up, extending the turbulence at a business trying to pull out of a deep slump.
Foley, who helped start Peloton in 2012 and served as chief executive officer for 10 years, is resigning effective Monday, the company said in a statement. Foley took the executive chairman role in February when he handed the reins to CEO Barry McCarthy, a veteran of Spotify Technology SA and Netflix Inc.
Chief Legal Officer Hisao Kushi, another co-founder, is also headed for the exits. He’ll be replaced in that role by Tammy Albarran, who Peloton recruited from Uber Technologies Inc. The chairman role, meanwhile, will be filled by Karen Boone, a former Restoration Hardware executive who currently serves as lead independent director.
Peloton investors initially applauded the changes, sending the shares up as much as 5.3% to $11.64 in extended trading on Monday. But the rally soon evaporated, with the stock declining more than 2%.
The reshuffling extends a year of upheaval at New York-based Peloton, which thrived in the early days of the pandemic but is now suffering from declining sales and mounting losses. Its shares are down about 90% over the past year, and the company has struggled to work through a glut of inventory.
As part of a turnaround plan, McCarthy has cut thousands of jobs and offloaded operations to third-party providers. But Peloton’s quarterly report in August signaled that his comeback effort has a long way to go.
McCarthy’s goal is to make Peloton cash-flow positive in the second half of the coming fiscal year. “We continue to make steady progress, but we still have work to do,” he said last month, while acknowledging that the company’s financial performance may cause some to doubt the “viability of the business.”
With Peloton’s longtime CEO now out of the picture, McCarthy may have a freer hand to make changes. The executive has said the company should prioritize its digital offering over hardware and is exploring allowing subscribers to beam content from their smartphones to non-Peloton fitness equipment.
Separately, Chief Commercial Officer Kevin Cornils is also leaving Peloton and won’t be replaced. Some of Cornils’s responsibilities will be assumed by Dion Sanders as he takes the role of chief emerging business officer, according to an internal memo from McCarthy reviewed by Bloomberg. Chief Content Officer Jen Cotter will assume control of apparel and accessories, showing that the company remains committed to that market.
Albarran will take over Peloton’s legal operations on Oct. 3. She helped oversee a corporate makeover at Uber, which set out to change its image in 2017 after its hard-charging style led to scandals and a strained relationship with drivers.
Peloton looks to draw on the experience of Albarran and Boone to “help move the company forward into our next chapter of growth,” McCarthy said.
Foley said he plans to build a business “in a new space” after leaving the company. The executive helped turn Peloton into an iconic fitness brand with a loyal following, but was criticized for not forecasting a sharp downturn in demand for its exercise bikes.
Some Peloton investors also had hoped that Foley -- and then McCarthy -- would consider selling the company. But no suitor emerged, and McCarthy has said that he didn’t take the CEO job to oversee a sale.
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