Peloton could learn a little something from fashion — and vice versa.
The company was one of the premier “pandemic stocks,” shooting up as investors bet the brand’s connected bikes put it in the right place as people stayed home and tried to work off their social distancing stress with a little sweat.
It was a positioning that had the company charging hard, working to boost its own production capacity and ramping up in apparel along with other expansions.
But the expectations — both internally and externally — started to outpace reality and the company’s market capitalization fell from $49 billion in January 2021 to less than $10 billion.
Activist investors saw potential, pointed to mismanagement and pressured the company to sell to the likes of Nike or Apple. Amazon was reported to be interested, perhaps to bolster its now more expensive Prime offering, although actually cutting a deal could be hard as boards are loath to sell from a position of weakness unless they have to.
On Tuesday, the company made its own move with sweeping changes aimed at getting its mojo back.
Barry McCarthy, the former chief financial officer at both Netflix and Spotify, was named chief executive officer. The board was tweaked. About 2,800 jobs were cut in a restructuring that will slash corporate positions by 20 percent. And the manufacturing footprint will be cut while $800 million in costs will be reined in.
Investors liked the direction and pushed shares of the company up 25 percent to $37.27, leaving it with a market capitalization of $12.3 billion.
Peloton is facing a kind of rightsizing that is familiar to fashion.
Simeon Siegel, a BMO analyst who covers Peloton and a long list of fashion and retail companies, said Under Armour Inc. and Victoria’s Secret have been there before. Both of those brands pushed growth and then found themselves in trouble.
“The answer was to retreat, retrench and refashion,” Siegel said. “It meant acknowledging growth would need to be put on hold. That’s what Peloton needs to be doing right now.”
Siegel said Peloton still has a way to go in its journey.
“Management is not yet able to acknowledge growth has changed,” he said.
At least some of the sky-high expectations around the company have moderated.
While Peloton has collaborated with a number of fashion brands — including Adidas and Ivy Park — the company’s own apparel business is still small, even if the hype around it had been big.
“The idea that this was going to be a Lululemon competitor was always more of a hope than anything based on numbers,” Siegel said.
The general confusion around the numbers used to describe and understand Peloton are, in part, a product of the company’s positioning. The company bills itself as “the leading interactive fitness platform in the world with a loyal community of more than 6.6 million members.”
That leaves it with one foot in the digital realm, where it sells subscriptions and content, and another foot in the physical world where pesky realities like inventory and supply chains are all important.
In some ways, fashion is now looking to make the opposite move and transcend the business of actually making clothes that are worn on the body to generating style for the metaverse that doesn’t quite exist yet.
It’s still a nascent boom town, but one that is, well, booming — not unlike Peloton was a year ago.
The problem might be that Peloton positioned itself for one reality and found out that it was living in another.
Around the industry, dealmakers are looking at Peloton and reading the tea leaves.
One fashion expert zeroed in on the $800 million in cost cuts.
“This isn’t a bloated, legacy, shrinking, global conglomerate — those costs were all consciously added in the past three to four years,” the source said. “So it’s not just ‘we’ll get tighter,’ it is a fundamental shift in how they think about themselves reflecting how the market is increasingly valuing them.”
Investors love technology stocks, in part, because once the better mouse trap is made, it can be pushed out to users cheaply, scaling up to huge profits. Peleton — and fashion — are in a different business.
“The market fell in love with subscription and believed — as is true in software — that it is a sign you’re going to take over the world and that people will pay a ton for that,” the source said. “In reality, it’s just a customer service.
“There are a lot of these names out there positioned as something they may not necessarily be — subscription businesses, digital platforms, etc.,” the source said. “But maybe you just sell shoes, or salads, or milk.”
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