Peloton Was Winning and Blew It
(Bloomberg Opinion) -- Peloton, you blew it.
The undisputed king of home workouts is initiating a safety recall of all its treadmills following reports and videos of children and pets getting sucked underneath the Tread+. In one instance, a 6-year-old died. The Tread, a cheaper version of the machine, is also being recalled because the mounted touchscreen sometimes detaches and falls off. Shares of Peloton Interactive Inc. — which beat every stock in the Russell 1000 index last year except Tesla Inc. and Enphase Energy Inc. — plunged 13% Wednesday to their lowest price since September. Its market capitalization peaked at $49 billion in January, but is now down to $24 billion.
The company, best known for its stationary bikes and music-pumped virtual classes, is scheduled to report earnings on Thursday. Analysts predict revenue more than doubled to $1.1 billion in the period ended March 31, even as Peloton grapples with supply-chain challenges. Now, executives will have to answer for a recall that threatens to damage its brand and dent sales and profits just as gyms are reopening to full capacity around the U.S.
There may be a zillion home-exercise products out there, but Peloton managed to break out from the pack and trade like a vaunted tech stock. It became the very symbol of quarantine fitness in the same way Zoom Video Communications Inc. came to symbolize socializing under lockdown. In fact, just hours before the recall on Wednesday, I published a column about the prospects for gyms and ClassPass Inc. in the reopening and how Peloton’s continued strength suggests many exercise buffs may not return to brick-and-mortar classes. But strength is not a given, it needs constant work, I imagine an animated Peloton instructor telling students. Meanwhile, ClassPass, a subscription service that provides access to numerous fitness studios, has reportedly held merger talks with Mindbody Inc., a booking software used by the industry, as both await the revival of fitness scenes like New York’s.
Poor quality control is easy to prevent but very hard to undo and for consumers to forget. Already, some social media users say they’re confused by the recall procedure, which says they can return their Tread or Tread+ for a refund — but how and where? At 455 pounds, the Tread+ isn’t exactly easy to load into one’s car. And if Peloton is willing to go around picking them up for customers, that sounds like a logistical nightmare. As an alternative, Peloton is offering to move Tread+ machines for customers to another room in the house that’s out of reach of children and pets; it’s also adding an automatic-lock feature that requires a passcode for use, which seems like a good solution. For the Tread, Peloton will make a house call to repair the mounted touchscreen.
I’ve long thought Peloton’s Achilles’ heel was going to be its quality. While the relative slimness of its products means they don’t take up much space in a room, the steep price of its bike at least felt like a mismatch to me after testing out other brands. I can’t help wondering whether Peloton has cheaped out in some ways.
The recall might not do much to disrupt the home workout trend, but it may make parents think twice about joining the Peloton club.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Tara Lachapelle is a Bloomberg Opinion columnist covering the business of entertainment and telecommunications, as well as broader deals. She previously wrote an M&A column for Bloomberg News.
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