- Peloton will lay off 2,800 employees and replace its CEO, cofounder John Foley.
- 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, it’s laying off 20% of its staff, replacing its CEO, and reportedly considering a potential sale to the likes of Amazon, Apple, or Nike. At times, Peloton’s stock has dipped below its IPO price of $29 per share.
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.
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 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.
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.
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.
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 is now laying off employees, replacing Foley, and 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 is 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 he takes 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.
Now, Barry McCarthy, the former chief financial officer of Spotify and Netflix, will replace 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.”