Peloton Interactive (NASDAQ:PTON) announced today that it will be ceasing its in-house manufacturing and handing all of it over to its third-party Taiwanese manufacturing partner, Rexon Industrial.
PTON is one of those companies that got too big too fast on hype with little product diversity behind it. At its core, the company’s flagship product is an exercise bike with an attached IPAD. The content involved is proprietary, but there are a number of different YouTube channels that can give the prospective customer the same experience and for free. Their secondary product is a $4,000 treadmill.
A high end nordic track treadmill (complete with IPAD like display) nowadays goes for $2,500. Regardless, the market ate it up in 2018 and by the following year, the company had sold over 577,000 bikes and treadmills. It decided to hold an IPO, and that was the first of its terrible decisions. The company’s IPO on the NASDAQ was abysmal, closing at $27 in 2019, shaving off over $900 million in investor capital.
“Today we take another significant step in simplifying our supply chain and variablizing our cost structure – a key priority for us. We believe that this along with other initiatives will enable us to continue reducing the cash burden on the business and increase our flexibility. Partnering with market-leading third party suppliers, Peloton will be able to focus on what we do best – using technology and content to help our 7 million Members become the best versions of themselves,” said Barry McCarthy, Peloton’s CEO.
The company has since had considerable ups and downs between now and then. The strangest is when it suffered from a cynical reception to a terrible advertising campaign in the Me-too era. The ad, in which a woman whose husband gave her a Peloton bike for Christmas, was viewed as sexist and the public outrage sent Peloton’s stock down another 9 per cent, shaving off another $942 million in valuation in one day.
The best performance since was during the pandemic, in which folks locked in their houses for fear of catching the disease bought exercise bikes to keep fit and sane. Except the bikes themselves suffered recalls as pedals snapped off and the company couldn’t get anyone out to fix them, sometimes for months at a time. After 120 reports of bikes breaking and 16 reports of customers getting injured, the company issued a recall affecting 30,000 bikes.
Post pandemic things didn’t exactly improve. Class action lawsuits trickled in for defective products. Children got hurt on its treadmill. Homeland Security got involved, subpoenaing documents pertaining to injuries. Gyms re-opened and people realized that maybe a $4,000 treadmill and $3,000 bike+Ipad might not be the best option compared to the $65 dollar a month gym membership.
Revenues plummeted. The company laid off employees and dumped their CEO. Apple and Amazon were named as potentially interested in an acquisition, sparking a 25 per cent bump in the price, and gave investors deep underwater a chance to bail out with their heads held high.
Is it any wonder that the short sellers have had a field day on this stock?
A high of roughly $165 and today’s price of $9.25.
Now Rexon will become the primary manufacturer for Peloton’s Bike and Tread product lines, slicing substantial overhead in terms of workforce, rents and taxes. The company will also be ceasing operations at its Tonic Fitness Technology facility through the remainder of 2022, effectively cutting out another good chunk of the liability side of their balance sheet in a desperate bid to stop the bleeding.
