Could Peloton be destined to go down as a one-hit wonder?

Every so often a headline brings you up short. So it was with: “Peloton CEO thinks losing $1.2billion is a sign of ‘substantial progress’”.

Wow. I want what he is having. The optimistic chief in question is Barry McCarthy and he is trying to convince anyone who will listen that the fitness equipment firm – “connected” fitness in the jargon because customers buy the bike or treadmill and pay extra to sign up to at-home classes – has a bright future. Brighter than its horrifying figures suggest.

As indicated, his company reported a fourth-quarter earnings loss of $1.2bn (£1bn), together with a 28 per cent revenue drop, a fall in membership and a “churn” in monthly subscribers of more than 1 per cent for the first time. Oxygen-gulping stuff. To put it mildly, the performance was worse than Peloton or its investors anticipated.

This, though, according to the irrepressible boss, is “progress”. Not just any old progress mind, but “substantial” at that. “The naysayers will look at our Q4 financial performance and see a melting pot of declining revenue, negative gross margin, and deeper operating losses. They will say these threaten the viability of the business,” McCarthy said in his shareholder letter.

They should appreciate, he reckons, that a slice of that $1.2bn – to be precise, $415m – is the cost of getting the brand back on track. Hang on, Barry, this is Peloton’s sixth consecutive quarter of losses, and you’ve declined to make any forecast for 2023.

Cue, at the end of his missive to shareholders, the citing of a metaphor from the spin (of the cycling type, but it could just as easily be the other sort) specialist: “In high school, I spent three summer months working on a cargo ship. After midnight on my second voyage, I was asleep when the alarm for general quarters woke me. My reporting station was on the bridge. Fear is a great motivator. I dressed while I ran. The 720ft ship was doing 27 knots and the helm was hard alee. The ship was healing sharply to starboard and the steel hull was shuddering. The captain was trying to turn the ship around, but a ship that big, going that fast, takes miles and miles to change direction. We saved two men’s lives that night. They’d been lost at sea, in the Mediterranean, for several days. A fortunate, happy ending.

“Peloton is like that cargo ship. We’ve sounded the alarm for general quarters. Everyone’s at their station. We continue to add new inputs to evolve our go-to market strategy to restore growth. When will the ship respond is the question. Our goal is FY23.”

It’s a nice story, but oh dear, far too complex. Everyone pulled together, the ship turned round eventually and two men were saved, is the message. But as a non-maritime person, I am struggling with the “everyone’s at their station” bit. How did that turn the vessel around? Surely that was the captain turning the wheel – or am I missing something?

Nevertheless, credit where it is due. Peloton is trying manfully to “get back on track” or turn the ship. They’ve had three rounds of staff layoffs, they’ve altered their subscription prices, lowered the prices of products, closed manufacturing facilities, reduced its retail outlets and distribution network, and redesigned the bikes so they can be self-assembled for easier, and cheaper, shipping.

It’s aiming at younger, more “value-oriented” shoppers – lower budget in other words. It’s starting to sell on Amazon.

To be fair, subscriptions are actually up year on year, by a creditable 27 per cent. And subscription revenues have exceeded the sale of equipment – important because the hardware is a one-off purchase, but subscriptions are repeat buys.

Hard miles in other words, and despite the undoubted effort going in, the feeling persists that Peloton is slipping back into the pack, having been the market leader during the years of Covid and may, despite McCarthy’s best endeavours, fall by the wayside completely.

His dilemma is that the company was positioned as decidedly upmarket, steeply priced at a time when people were prepared to pay whatever it took just to be able to work out at all. Those days have gone, lockdowns are over, parks and gyms have reopened and the exercise machinery is consigned to the corner of the spare bedroom or garage.

Peloton, same as takeaway delivery services and protective equipment, was a rare pandemic commercial success story. I lost count of how many occasions I clicked on its website to see if the wait for its bikes had come down – such was the demand and such was my craving to be able to ride and push myself, and participate in a class with others, albeit online.

Now, with spinning classes having restarted, I’ve stopped checking. I don’t give owning a Peloton a second thought.

He can switch into studios, as Peloton is doing in New York and London. Again, though, what sets the name apart is lost, as Peloton becomes another gyms and classes operator.

McCarthy is trying to popularise, to open up the products to audiences who were previously deterred by their cost. He’s got no choice, but with that, Peloton loses its cachet, its USP.

It may be there will always be a market for those who prefer exercising at home via classes on the internet. It will be small, however, certainly much smaller than the one Peloton hitherto enjoyed.

Whether that is sufficient to sustain the business remains to be seen. I have my doubts. Peloton could easily be destined to go down as a one-hit wonder – great for a while but only for a while. McCarthy may succeed in turning his ship, only to find the sea is equally treacherous and unforgiving.