Is the Peloton share price going all the way down to zero?

What a difference a year has made to the share price of Peloton Interactive (NASDAQ:PTON). On 13 January 2021, it closed at an all-time high of $167. Today, I can pick up the stock for less than its IPO price of $29 – that’s a fall of 85%. So where has it all gone wrong for this former lockdown darling? Can the company survive into the future or will its name be added to the scrap heap of failed corporate ventures?

A tail-spin of negative headlines

Peloton’s woes can be traced back to November 2020. Back then, still in the grip of the pandemic and stay-at-home orders across large parts of the globe, people turned to its bikes and treadmills in huge numbers in order to work out. But as customer complaints begun to rise due to shipping delays from Asia, it was forced to invest heavily in air freight.

In order to bolster its manufacturing capability in the US, it paid $420m to acquire fitness equipment manufacturer, Precor. Then, in May 2021, it announced its intention to build its first US factory, due to open in 2023.

However, negative press continued to follow Peloton. First, the company was slow to act in response to safety concerns regarding its Tread+ machines following the death of a child. Then came the share price fall in response to an HBO reboot of Sex and the City in which one of the stars died of a coronary following an intense cycle workout on one of its machines.

Last week, the stock lost a quarter of its value when a leaked internal report that the company intended to halt production of its fitness equipment. The reason given was a “significant reduction” in demand. There were also unconfirmed reports that it would delay the opening of its US factory until 2024 to save costs.

Can Peloton recover?

It is clear that Peloton’s prediction about its sales growth in a post-pandemic world were wrong. Unlike the work-from-home trend, which seems to be here to stay, a lot of people still want to go to the gym or train outdoors. And, besides, competition in the home-gym equipment market is more intense today. In a recent survey of 4,000 people by insurer Aviva, many deeply regretted buying big-ticket items to entertain themselves – including exercise equipment – during lockdown. Although hardly scientific, I think this tells a tale itself.

What will happen to Peloton’s stock price in 2022 is anyone’s guess. What is clear is that near-term tail risks remain. For example, with inflation rising and heightened supply chain costs, the company intends to start charging customers hefty additional fees for delivery and set up. I expect such charges to impact on sales figures in 2022.

Of course, Peloton is a lot more than just a fitness equipment manufacturer. It also charges a monthly subscription fee for on-demand content. I am also encouraged by its ability to innovate. Its most recent offering, Peloton Guide, is a strength-training gym. It’s a no-frills product consisting of a camera that plugs into a tv and monitors a user’s movements.

In the mid-term, I doubt Peloton’s share price will reach anywhere near $167. Whether it sinks from here, though, will very much depend on how well it can make itself relevant to people’s lives in a post-pandemic world.