Is Peloton’s Crash A Warning For Connected-Fitness Startups?

Peloton said Tuesday that CEO John Foley will step down and the company will slash 2,800 jobs after seeing demand for its product wane.

Peloton quickly emerged as a “pandemic winner”—a company that experienced the financial upside of the COVID-19 pandemic and its associated stay-at-home orders. With gyms closed and people looking to exercise at home, Peloton saw demand for its product—and its stock price—skyrocket at the start of the pandemic.

But the company has faced hurdles in recent months. CNBC reported last month that Peloton is pausing production on its bike after demand slowed down. With more people vaccinated and returning to gyms, fewer consumers are willing to shell out roughly $2,000 for the company’s high-end stationary bikes.

With its stock price down, Peloton is cutting costs, including scrapping plans for a factory in Ohio. 

Potential acquirers including Amazon and Nike have reportedly expressed interest in the company. Activist investor Blackwells Capital LLC called for Peloton to fire its CEO and look into selling the company, The Wall Street Journal reported on Tuesday. 

“While Foley has supermajority B shares and ultimately controls the fate of Peloton, we believe shareholder pressure will build to solicit bids and sell Peloton to a strategic player with potential bidders Apple, Amazon, and Nike likely in the fold,” Dan Ives of Wedbush Securities said in a research note to investors.

The bigger picture

In 2021, VC-backed companies in the fitness space raised nearly $5.9 billion in funding, up from around $2.4 billion in 2020, according to Crunchbase data. In other words, investors bet big on the category after 2020 proved that consumers would spend on fitness companies rather than or in addition to gyms. Dieting app Noom led the pack with a $540 million funding round, and connected-fitness companies including Tonal and Tempo also raised nine-figure rounds.

But whether connected-fitness startups can maintain their momentum in 2022 remains to be seen.

All in all, Peloton’s issues could be just company-specific. The main issue is how fast Peloton grew, according to Helaine Knapp, CEO of fitness startup CityRow, a connected-fitness company for rowing. Peloton’s issues are their own and likely have more to do with certain management decisions, as the company is growing and has a high retention rate and brand loyalty, she said.

At-home fitness isn’t going anywhere, as gym-goers want a combination of at-home and in-person experiences, Knapp said. 

“People want to be able to work out at home but they also really want to be able to work out with other humans…, it’s really not shocking that we’re recalibrating coming out of the past two years,” Knapp said.

In fact, CityRow has seen its machine sales, virtual class enrollment and in-person attendance spike as people have returned to gyms, according to Knapp.

“General fitness continues to grow like crazy,” Knapp said. “And digital fitness is a piece of it. If anything Peloton can really pave the way for a tremendous wave of connected fitness behind it.”

Illustration: Dom Guzman

Learn More