Peloton: flat tire on the fitness hype

While everyone was at home and disappointed during 2020 a company used the opportunity to its advantage. COVID changed Peloton from a small fitness brand into a major landmark in the history of finance. During the peak of the pandemic, its $2,000 stationary bike became a status symbol and a supposed alternative to the gym. It convinced millions that high-quality home fitness was not only convenient but also better. This spike in demand pushed the company's valuation to an impressive $50 billion. Five years later, the situation has changed dramatically. Peloton's share price is around $6, down more than 95% from its highest point, and the once-essential bike has lost much of its importance.

To understand the collapse we must first understand why Peloton’s share price was so exorbitantly high. Before 2020 it was a niche luxury brand, but in March of 2020 that changed. Gyms were shut down, because of infection risk, and tens of millions of people flogged to an at home alternative, which luckily for Peloton, was them.

Due to the high prices the company adopted a monthly payment system for many customers. The company’s growth model was simple and devastatingly effective during lockdowns: sell a $2,245 bike or $4,295 treadmill, lock the customer into a $44/month subscription, and watch the recurring revenue compound. In the year that followed their revenue exploded. Wait times stretched to 4 months, because demand far outstripped supply. Investors, hype on the idea of a potential market shift to home fitness valued Peloton as the “Netflix of Fitness”, a subscription model with reliable profits.