Peloton – shows the Rise-and-Fall of Pandemic Online Businesses

Peloton isn’t the only pandemic darling that’s now fading from the limelight with sales, market share and shares crashing.

This was not supposed to happen – remember all those projections in 2020 about how life would change forever?

Every consumer would live, work and enjoy life only at home – turns out humans are social animals and constantly being locked up sucks.

A classic example of hype and spin.

Even today folks dribble on about how online will dominate the retail world - what cave are you living in?

Well unless you live in China (online close to 50% of retail sales) online sales are back on trend at 9-13% of retail spend.

This US chart demonstrates this very clearly –

Don't believe me, check out Shopify, Adyen, Affirm, ?Paypal, Squares stock price declines - also Amazon had single figure growth in its core business

Netflix stock?dropped?by 23 percent after an earnings report on last week signalled that it would add only 2.5 million subscribers this quarter, far behind the 6 million that analysts estimated.

Shares of Zoom and DocuSign, whose products were the linchpin for many work-from-home operations, have been trading at their lowest levels?since May 2020?and lost more than half their market values compared to their peaks.

BNPL stocks in Australia have decline 86% since peaks in March 2021 – yet another online pandemic ?niche.

These declines demonstrate to the end of the “pandemic stocks” that thrived on the stay-at-home market.

The New York Times?reports?that investors are now flocking to “reopen stocks” for companies like the concert promoter Live Nation that could reap a windfall from loosening restrictions.

Online Sales Starting Unwinding Early in 2021

The bigger story was the unwinding of the pandemic work from home work/ online trade as countries opened up and office work returns. The at home and online volumes have greatly helped online apps in 2020, but this has unwound in 2021 and results started to appear for those who could look past the PR, spin and hype.

Even some projections appeared counter to the prevailing narrative – as this Economist May 2021 chart shows -

The COVID-19 pandemic accelerated growth and the trend was clearly visible and accelerated some trends e.g. roughly 6% of U.S. citizens (over 14 million people) now use digital banking only for their money management and online entertainment and purchasing surged in 2020.

This activity started unwinding late 2020 and early in 2021 as consumer activity moving from the home office to high street cafes, restaurant and shops – see this evolve in Google searches yellow is 'at home' with blue 'main street'.

Black Friday Sales Down

Another warning was soft Black Friday sales -

Traffic at retail stores on Black Friday dropped 28.3% compared with 2019 levels, according to data from Sensormatic Solutions.

Traffic was up 47.5% compared with year-ago levels, Sensormatic said.

Online, retailers rang up $8.9 billion in sales on Black Friday, down from the record of about $9 billion spent on the Friday after Thanksgiving a year earlier in 2020.

Affirm Caught Up in This Mess

US BNPL company trumpeted its partnership with Peloton when it IPO'd in January 2021 - turned out 30% of all sales were Peleton goods - great in a pandemic but really risky once the trade unwound.

Affirm stock peaked $176 - today $65 and has been as low as $43

Consumer goods get on their bike

Peloton’s stock price has done a roundtrip. It’s not the only one.

FINANCIAL TIMES CLAIRE JONES AND JAMIE POWELL 8th FEB?

John Foley, CEO of everyone’s favourite iPad-with-wheels outfit Peloton, has been ousted. Here’s the story from the Wall Street Journal, which broke the news earlier today:

“Peloton?Interactive Inc. plans to replace its chief executive, cut costs and overhaul its board after a slowdown in demand caused the once-hot bike maker’s value to plummet”

“Peloton?co-founder?John Foley, who has led the company for its entire 10-year existence, is stepping down as CEO and will become executive chair, the company told The Wall Street Journal. Barry McCarthy, the former chief financial officer of Spotify Technology SA and Netflix Inc., will become CEO and president and join?Peloton‘s board.”

“The New York company will also cut roughly 2,800 jobs, affecting 20% of its corporate positions, to help cope with the drop-off in demand and widening losses. The cuts won’t affect?Peloton‘s instructor roster or content.”

Peloton has problems that are unique to it. But we think Foley’s departure also highlights a broader trend: after soaring during the early days of the pandemic, demand for consumer goods is waning.

Here’s a by-no-means exhaustive set of five charts to illustrate our point. First off, Peloton’s share price since late 2019:

At pixel time the company’s shares sit at $29.75, marginally above its initial public offering price of $29, and some 80 per cent below all-time highs from a year ago. Aside from that Sex and the City sequel storyline, there are a couple of reasons for this. It is in part down to the company struggling to sell its equipment — still the biggest money-spinner despite charging users premium prices for monthly subscriptions to its classes. It has also shelved plans to build a factory in Ohio, calling into question another trend we heard a lot about during the early days of the pandemic: reshoring production.

A big reason for the interest in bringing manufacturing back home was the difficulty in sourcing goods from abroad. Over the past 18 months, shipping costs have soared, container ships have ended up stuck outside ports for weeks on end, and when the goods have reached the shore there have been shortages of truck drivers to take them on to their final destinations.

As we said at the time, this was not just a case of weak links in supply chains. It also reflected a surge in demand for consumer durables, the vast majority of which reach US and European shores by ship.

So what’s happened of late? Broadly, the rise in shipping prices has halted (though they remain super expensive compared with pre-pandemic). ?

Speaking of logistics, shares in grocery delivery specialist Ocado fell 10 per cent this morning to ￡12.63 after it announced a drag on profits from investments, flagged the labour shortage and, perhaps most tellingly, reported smaller order sizes versus 2021.

Its shares, like Peloton, have now roundtripped back to levels last seen in March 2020: The flipside is that punters are returning to restaurants. Data from OpenTable tracking seated diners in the UK shows that, following the Omicron scare over Christmas, we’re almost at pre-pandemic levels when it comes to eating out:?

Google Trends shows that worldwide searches for “best restaurants” and “concerts” are on the up too, while those for “home fitness” and “bikes” — apparently of all varieties — are back at their pre-March 2020 levels.

This doesn’t mean that Peloton and its ilk haven’t got a future. Its users are loyal — not to say fanatic — with membership renewal rates sky-high. And hybrid working is going nowhere fast. But the assumption made by Foley that people would continue buying its equipment at the rate that they did during the early lockdowns looks misguided in the extreme. In the coming months, we’ll see how many others made similarly pie-in-the-sky bets.

Peloton CEO John Foley to Step Down, Firm to Cut 2,800 Jobs

Exercise-equipment maker names former Spotify CFO Barry McCarthy as successor, changes board

WALL STREET JOURNEL By?Cara Lombardo ?Feb. 8

Peloton Interactive?Inc. is replacing its chief executive and cutting 2,800 jobs after a slowdown in demand caused the once-hot bike maker’s value to plummet.

Peloton co-founder John Foley, who has led the company for its entire 10-year existence, is stepping down as CEO and will become executive chairman. Barry McCarthy, the former chief financial officer of?Spotify Technology?SA?and?Netflix?Inc.,?will become CEO and president and join Peloton’s board.

The New York company lowered its revenue forecasts and said it would cut roughly 20% of its corporate positions to help cope with widening losses. The cuts won’t affect Peloton’s instructor roster or content.

Peloton shares rose 25% to close Tuesday at $37.27 after the company confirmed The Wall Street Journal’s earlier report on the leadership moves and other changes.

A little over two weeks ago, activist investor Blackwells Capital LLC?called for Peloton to fire Mr. Foley?and explore a sale of the company, which the Journal has reported is?attracting potential suitors?including?Amazon.com?Inc.?

Blackwells reiterated its call Tuesday, saying Mr. Foley should leave the company entirely rather than become executive chairman. Blackwells also released a 65-page presentation in which it estimated a sale could value Peloton above $65 a share.

“We are open to exploring any opportunity that could create value for Peloton shareholders,” Mr. Foley said in an interview prior to Blackwells’s Tuesday release. Mr. Foley, a former Barnes & Noble Inc. executive who co-founded Peloton 10 years ago, declined to comment further.

Any deal would likely require Mr. Foley’s support, as he and other insiders have shares that gave them control of more than 80% of Peloton’s voting power as of Sept. 30, according to a securities filing.

For a while Peloton enjoyed high times as?a pandemic darling, with homebound customers ordering its exercise equipment and streaming its virtual classes. Its valuation soared. But its fortunes sagged as lockdowns eased and gyms started to fill up again. The company’s value had fallen from a high of around $50 billion roughly a year ago to around $8 billion last week.

?On Tuesday Peloton said it had a second-quarter net loss of $439 million. It also lowered its revenue forecast for its full fiscal year to a range of $3.7 billion to $3.8 billion, down from a prior range of $4.4 billion to $4.5 billion.

Messrs. Foley and McCarthy said that the company had long been planning to hire a new chief executive and that Mr. McCarthy entered the picture in the past few weeks.

“I have always thought there has to be a better CEO for Peloton than me,” said Mr. Foley, 51 years old. “Barry is more perfectly suited than anybody I could’ve imagined.”

Mr. McCarthy, who is 68 and plans to move from California to New York, said his strength is a deep understanding of content-driven subscription models, while Mr. Foley’s is in product development and marketing.

?“Together we can make a complete grown-up and build a really remarkable business,” Mr. McCarthy said. He has consulted for Peloton investor Technology Crossover Ventures, sits on the boards of Instacart Inc. and Spotify, and was finance chief of the music-streaming service until early 2020.

Peloton is making other personnel changes: William Lynch, president, will step down from his executive role but remain on the board; Erik Blachford, a director since 2015, will leave the board; and two new directors will be added.

The new directors are Angel Mendez, who runs a private artificial-intelligence company focused on supply-chain management, and Jonathan Mildenhall, the former chief marketing officer of?Airbnb?Inc.?and co-founder of branding company TwentyFirstCenturyBrand.

Blackwells said the executive and board changes don’t address its concerns and detailed its critiques of Mr. Foley and the company in the presentation released Tuesday. It cites media quotes in which Mr. Foley admits to interviewing “almost nobody” who joins Peloton and spending little time on the company’s finances and technology.

It also says he failed to imagine that demand for Peloton bikes and treadmills would ever cool, allowed his wife to run Peloton’s flagging apparel business and bungled the company’s $431 million acquisition of Precor, a fitness-equipment maker.

The activist fund also highlights that insiders sold roughly $496 million worth of their stock in 2021, including about $96 million sold by Mr. Foley. In addition, Mr. Foley and other board members have pledged much of their stakes in the company as collateral for loans.

Peloton had no comment on the Blackwells presentation.

Peloton said it expects to cut roughly $800 million in annual costs and reduce capital expenditures by about $150 million this year. The company will wind down the development of its?Peloton Output Park, the $400 million factory that it said in May it was building in Ohio, and reduce its delivery teams as well as the amount of warehouse space it owns and operates.

“Where the company got over its skis is it built out a cost structure as if Covid was the new normal,” Mr. McCarthy said.