New York Actually, the founder of the noble fitness equipment manufacturer Peloton John Foley only knew good news in the pandemic. When the world stopped leaving its own home and gyms were closed, its treadmills and trim bikes boomed. Sales rushed from one record to the next and the share price of the New York company also climbed higher and higher.
But then things got really bad: in April, a six-year-old child was killed by his parents’ device because it had been pulled under the tape. Although the consumer bureau called for a recall, the 50-year-old founder and CEO initially refused.
The share price slid further and further down and reached its preliminary low for the current year at $ 82.62 last Wednesday.
“Peloton made a mistake with its initial response to the Consumer Financial Protection Bureau’s request to recall the Tread+,” he said, referring to his company’s treadmill model. The company should have reacted better from the start.
Foley stopped selling the treadmills and now wants to work on the safety of the equipment. In addition, Peloton offers its customers a full refund if they want to return their treadmills. According to the Consumer Protection Agency, information is available on more than 70 accidents involving children or even pets. The popular stationary bicycles are not affected by the promotion.
For Foley himself, the fatal accident is probably the most difficult test in his career. The New Yorker with an MBA from Harvard Business School and positions as CEO of the Evite online invitation platform and the online retail of the Barnes &Noble bookstore chain founded the company nine years ago. Peloton offers several $ 2000 bikes with a built-in display and sells streaming courses on subscription. Some of the coaches have real fan bases.
Peloton increased sales by 141 percent in the last quarter
Today, Peloton is one of the most famous fitness brands in the world, whose fans include singer Jennifer Lopez, as well as actor Hugh Jackman and Jamaican sprinter Usain Bolt. The German Football Association has also announced a partnership with Peloton.
Since the gyms have been closed in many places due to Corona, Peloton has had to work on the supply chain in order to keep up with the deliveries. In the most recent quarter, Foley’s revenue rose 141 percent to $1.26 billion, beating analysts’ expectations. The loss was also lower than expected at $8.6 million.
But in the current fourth quarter, Foley is now anticipating a slump in sales due to treadmill issues and expects only $915 million in revenue.
The share price is also now far from its record set in January. Nevertheless, investors basically trust the New York company, which has not yet written a profit, and still value it at more than $ 25 billion. On Monday, Peloton’s share price climbed by almost two percent in the meantime, despite the recall campaign and also because of the good quarterly figures.
It was not always easy to convince investors, especially at the beginning: “I think the venture capitalists were afraid of the complexity of our business model,” Foley told Handelsblatt last year. After all, he didn’t just want to use an existing wheel and put a screen on it, but wanted to link the technology more closely and offer streaming courses. He also wanted to manufacture the wheels himself and have them delivered by his own employees.
Investors had doubts about the business model at the beginning
“The venture capitalists asked: What is the market for a $2000 standing bike? And we answered: we are not selling a bike, but an experience with an enormous value,“ said Foley. Since he could not convince the venture capitalists with this, he turned to the crowdfunding community. With the help of a video with the prototype, he raised almost $ 300,000 on the crowdfunding platform Kickstarter in 2013.
Now, however, Foley does not have to convince venture capitalists, but above all his customers. He must convey to them that his devices are safe and do not pose a mortal danger to their relatives and animals.
Ron Josey of JP Morgan is confident that he can succeed: the problems with the treadmills are “a break” and not a lasting setback. The recall of the treadmills is “obviously not a great result,” he says. The demand and community that Foley has created among his Peloton fans is hard to copy.
“We think most customers don’t really bring their device back,” Josey explains. “We believe that the majority placed it in a relatively safe place at home.“