Fitness Fight: Peloton Reports Drop in Earnings​

By Robyn Ma​


The Story

Has fitness technology group Peloton passed its peak? Revenue for the first quarter of the company's 2022 financial year is forecasted to reach $800 million - well below the $1.01 billion estimated by analysts (Investors Business Daily). The company also posted a net loss of $313.2 million, compared to a profit of $89.1 million last year, when it benefitted from the home fitness trend during the pandemic.

Peloton’s slower growth can be attributed to two reasons. Firstly, after reports of injuries caused by Peloton’s treadmills, including the death of a six-year-old child, the company voluntarily recalled its treadmills and offered full refunds to customers, following negotiations with the US Consumer Product Safety Commission (Financial Times). This cost the company $165 million. Subsequently, Peloton was subpoenaed by the US Department of Justice and Department of Homeland Security for its reporting on these injuries (CNBC).

Secondly, amidst increasing competition in the home fitness market, Peloton has slashed the price of its bikes by 20% - perhaps in the hope of reaching new customers (CNN). BMO Capital Markets analyst Simeon Siegal suggested that discounted bike prices and increasing marketing is “a clear signal that the cost to acquire customers is rising” (CNBC). Although the company largely benefitted from the pandemic - with revenue increasing by 141% year-on-year as consumers rushed to purchase at-home equipment - it is now facing increased competition (Financial Times).

What It Means For Businesses And Law Firms

With the easing of lockdown restrictions, many people are returning to gyms, which has prompted the recovery of the in-person fitness industry. The high retention rates and frequency of usage from customers have attracted new investors to fitness studio businesses – prompting some of these businesses, like Xponential, to issue IPOs. While shares of Peloton have dropped, Xponential’s shares are trading way above their listed price. Other groups, like PureGym in the UK, are exploring a potential sale or IPO.

Nevertheless, we may see a gradual shift away from expensive annual gym memberships towards lower-cost options, or options that offer a combination of digital and in-person experiences. Large chains like Planet Fitness seem to be well-positioned to cater for such consumers. While Peloton may have two million subscribers, some cannot afford, or make room for, its equipment, and its recent misfortune could not have come at a worse time (Financial Times).

Antitrust lawyers will be responsible for helping Peleton to navigate the industry as the economy re-opens and regulators get involved. Indeed, the company was previously advised by US regulatory firm Keller and Heckman. Peloton’s lawyers will also be working to protect Peloton’s public image and reputation and to defend against claims in light of reports of its machines’ shortcomings. Litigation lawyers may have a role to play as well. Previously, Peloton was hit with a class-action suit by Rosen Law Firm. This case is unlikely to be the last of its disputes.