The share price of upmarket exercise bike company Peloton, one of the big early lockdown winners during the pandemic, has set a new record low following an 8.7% loss yesterday. The company’s market capitalisation has now fallen by over 63% this year and almost 86% over the past twelve months. Shares are worth around half of what they were after 2012-founded Peloton was first listed in 2019.
Yesterday’s fresh tumble in valuation came after Peloton announced widening losses as its sales fell with further declines in revenue expected as a result of weak demand. Demand for Peloton’s home exercise bikes, which cost around £1345 in the UK and come with a monthly subscription to online exercise classes at £12.99, soared during the pandemic.
The company’s valuation also leapt with the Peloton share price hitting $162.72 in December 2020 after 750% growth from March that year. Yesterday it dropped to $12.90 after the company said that quickly rising expenses has seen it become“thinly capitalised for a business of our scale”.
Cashflow is not being helped by inventory building in the company’s warehouses after months of relatively weak demand and production levels that had been ramped up to cope with the surge in orders just months earlier.
Yesterday Peloton chief executive Barry McCarthy told the company’s shareholders?
“Turnarounds are hard work. It’s intellectually challenging, emotionally draining, physically exhausting and all-consuming.”
McCarthy succeeded John Foley, the Peloton co-founder who now serves as executive chairman, as chief executive in February. He previously held roles at Spotify and Netflix. He has been tasked with stabilising and turning around the company, whose revenues were down 24% year-on-year for the three months to March.
That drop in revenues saw losses leap to $757.1 million from $8.6 million a year earlier. The forecast for the current quarter provided yesterday was also gloomy. Peloton expects sales to drop at least 25% from the same three months last year to between $675 million and $700 million. Growth in its fitness class subscriber base is also expected to drop to 1% and see the quarter end with 2.98 million subscribers.
The company now only has $879.3 million in cash, which will be quickly devoured if losses over the last quarter are repeated. McCarthy is convinced Peloton will manage to sell down much of the inventory it has built up over coming months to improve its capitalisation but has signed an agreement with the banks Goldman Sachs and JP Morgan to borrow $750 million repayable over five years.
That provides a safety net that gives McCarthy a little more time and wiggle room but the pressure is already on just a few months into his new job.