Retail

$2.5 billion wiped from Peloton's market value as shares tumble below IPO price

Key Points
  • Shares of Peloton closed down 23.9% at $24.22 on Thursday, wiping roughly $2.5 billion off of its market value.
  • The sharp drop brought the stock beneath the $29 mark where it first priced at in September 2019, and marked another notable milestone in the company's turbulent ride in recent months.
  • The shares plummeted after CNBC reported that the connected fitness company is temporarily stopping production of its products, and they were halted for volatility multiple times.

In this article

VIDEO4:1504:15
Peloton saw a pandemic pull-forward in demand as an expansion of audience, says analyst

Shares of Peloton closed down 23.9% at $24.22 on Thursday, wiping roughly $2.5 billion off of its market value.

The sharp drop brought the stock beneath the $29 mark where it first priced at in September 2019, and marked another notable milestone in the company's turbulent ride in recent months.

The shares plummeted after CNBC reported that the connected fitness company is temporarily stopping production of its products, and they were halted for volatility multiple times.

After the market closed, Peloton then issued a press release that said its fiscal second-quarter revenue would be within its previously forecast range. However, it said that the quarter ended Dec. 31 would add fewer connected fitness subscribers than it had been projecting. Peloton shares turned positive in extended trading, on this announcement.

"As we discussed last quarter, we are taking significant corrective actions to improve our profitability outlook and optimize our costs across the company," said Chief Executive John Foley, in a statement.

Peloton went public more than two years ago with an initial market capitalization of $8.1 billion. The stock briefly traded below the $29 threshold following its public debut. Around mid-March of 2020, near the onset of the pandemic, Peloton shares were hovering around $23, as the broader market was tumbling amid the uncertainty of the coronavirus.

A monitor displays Peloton Interactive Inc. signage during the company's initial public offering (IPO) across from the Nasdaq MarketSite in New York, U.S., on Thursday, Sept. 26, 2019.
Michael Nagle | Bloomberg | Getty Images

But as investors began to view Peloton as the ultimate stay-at-home stock, the shares went on a massive rally. The name hit an all-time intraday high of $171.09 on Jan. 14 of last year, as Peloton was reporting triple-digit revenue growth and seeing record-low levels of churn among users. At that point, it fetched a market cap of almost $50 billion.

Investor concerns started to trickle in, however, as Peloton's massive growth was coupled with supply chain constraints. Customers that had shelled out thousands of dollars for a Bike or one of Peloton's treadmill machines were reporting delivery delays, and Peloton was forced to invest in order to beef up its manufacturing capacity.

Then, news of a child dying from an accident associated with Peloton's pricier Tread+ treadmill machine last March spooked both investors and consumers. At first, Peloton resisted calls for the company to recall its treadmill machines. As additional injuries were reported, though, Peloton issued a voluntary recall of both its Tread and Tread+ products last May. The shares were trading below $100 at this point.

In recent months, Peloton has seen the pace of its revenue growth slow, and it isn't adding as many new users per quarter as it was a year earlier. Some of this could be expected, as the pandemic spurred extraordinary consumer demand for Peloton's fitness products when gyms were temporarily shut and people wanted to work out at home. Now, though, consumers have a litany of at-home fitness options to choose from: Tonal, Hydrow, Mirror, Tempo and Clmbr, to name a few. They can also opt to go back to a gym or a boutique fitness class.

After reporting three consecutive quarters of net income, Peloton booked a loss in the three-month period ended March 31, and its losses have mounted in the quarters since.

Peloton has said it doesn't expect to be profitable – before interest, taxes, depreciation and amortization – until fiscal 2023.

CNBC reported on Tuesday that Peloton is now working with consulting firm McKinsey & Co. to look for opportunities to cut costs, which could include layoffs and store closures.

At the end of this month, it will also start to tack on shipping and setup fees for its Bike and Tread products, in part because of historic inflation. The price of its Bike will go to $1,745 from $1,495. Its less costly treadmill will rise to $2,845 from $2,495. The Bike+ will remain $2,495, according to Peloton's website.

Peloton had just slashed the price of its Bike last August by about 20% to $1,495, saying it hoped to give consumers a more affordable option.

JMP Securities analyst Andrew Boone said in a note to clients that the looming price hikes could bring in as much as an additional $150 million in revenue and gross profit in fiscal 2023. It could also encourage future customers to purchase Peloton's more expensive Bike+, he said, which isn't being impacted by the price hikes and could now be viewed as a more reasonable option.

But the extra fees could also hurt demand and push consumers to shop elsewhere.

Peloton is banking on product innovation and international expansion to help fuel future growth. It will soon start selling a strength product called Peloton Guide in a bundle with its heart rate armband for $495. The hope is that existing users will become repeat customers when they purchase accessories, such as Peloton's dumbbells or cycling shoes, as well as apparel.

After rising more then 440% in 2020, Peloton shares dropped 76% in 2021.

VIDEO4:3804:38
Peloton temporarily halts production of Bikes and treadmills as demand falls