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Peloton insiders on their wild 2020: The 'most unique' year ever

Brian Sozzi and Erin Fuchs
·9 min read
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The beard on the face of Peloton President William Lynch is perhaps a touch whiter than the one he sported on the company’s ballyhooed IPO day at the Nasdaq on September 26, 2019.

But after almost 10 months of helping to lead the fitness player (PTON) through a crush of consumer demand for digital bikes and treadmills during the COVID-19 pandemic, the extra gray in Lynch’s beard is very understandable.

“This has been the most unique year of my 30-year career by a lot,” Lynch told Yahoo Finance in an interview. That’s saying a lot considering Lynch led Barnes & Noble as CEO from 2010 to 2013 as Amazon totally upended the book industry. And he also played a key role in the development of the Palm Pilot in the late 1990s.

In short, welcome to the wild year for Peloton.

From ‘Peloton wife’ to a shortage of bikes

It was just over a year ago that Peloton was ridiculed over an ad featuring a “nervous” yet “excited” wife getting one of its bikes for Christmas from her husband. (“Nothing says ‘maybe you should lose a few pounds’ then gifting your already rail thin partner a Peloton,’” one writer quipped on Twitter.)

At the time, just weeks before a new coronavirus emerged in China, gym goers might have balked at paying $2,245 to pedal to nowhere in the comfort of their homes. A connected Peloton treadmill — known by “Pelo” devotees as the “tread” — cost even more at $4,295. Pam Mitchell, a producer for Yahoo Finance Live and fitness enthusiast, was likely one of those people. Never a “spin class person,” Mitchell swore by boutique fitness classes offered by Orangetheory, a one-hour full-body workout — a high-intensity class she did in-person.

But she re-considered her options in mid-March, as much of the nation shut down.

“It was the best investment I have made,” she said of her Peloton, later noting she’s not sure when gyms will be safe again and that she’s “a little nervous about gym cleanliness.”

NEW YORK, NEW YORK - SEPTEMBER 04: People attend an outdoor SoulCycle class at the Hudson Yards as the city continues Phase 4 of re-opening following restrictions imposed to slow the spread of coronavirus on September 4, 2020 in New York City. The fourth phase allows outdoor arts and entertainment, sporting events without fans and media production. (Photo by Noam Galai/Getty Images)
People attend an outdoor SoulCycle class on September 4, 2020 in New York City. (Photo by Noam Galai/Getty Images)

Yahoo Finance personal finance reporter Stephanie Asymkos did love in-person spin classes prior to the pandemic. Since receiving her bike in April, though, Asymkos, has become a Peloton person. Asymkos also noted that the bike makes financial sense since boutique spin classes like SoulCycle can cost $40 with shoe rental.

Peloton’s entry-level bike now starts at $1,895 plus a $39 monthly subscription fee, not cheap but still far cheaper per month than many gyms.

And, likely because many people can’t (or won’t) go to the gym these days, sales of at-home gym equipment soared this year. Basic equipment like dumbbells became scarce. In the two weeks following March 6, ICON Health & Fitness says that it saw sales of NordicTrack treadmills and ProForm bikes spike a whopping 200%.

Peloton sales soared so much, though, that wait times for bikes dragged out to as long as 11 weeks over the summer, dinging the company’s stock and prompting complaints to the Better Business Bureau over delivery delays. Peloton apologized on the BBB website, blaming delays on “extenuating circumstances.”

Lynch said shortening delivery times is like "chasing a moving target" because demand keeps increasing. "We are making huge investments in supply chain, and that includes building out new factories," he added.

But a supply shortage has not been the only challenge Peloton faced this year — it may not have even been the biggest for the New York City-based company.

‘We better bring it’

“Certainly, 27 years of work experience probably never, never prepares you for something this unexpected,” Peloton CFO Jill Woodworth recently told Yahoo Finance.

Like many businesses in New York City, Peloton became a largely remote operation almost overnight after New York Governor Andrew Cuomo put the state on “pause” in March. Amid this transition, the company kept hiring at a furious pace and made decisions on the fly to keep its more than 1,800 employees safe.

There were missteps. Peloton continued its live classes after New York shut down, albeit without members riding in-studio, drawing concerns from some riders over the welfare of their favorite instructors. In April, after an employee tested positive for coronavirus, Peloton stopped live classes until May 27, pivoting to a brand-new venue: instructors’ homes.

“Live from Home” gave viewers a glimpse into the lives of instructors who have become celebrities in the fitness world — from Ally Love, who’s also a dancer and Brooklyn Nets host, to Sam Yo, a former monk whose catchphrase is “Give me a Yes, Yo!” Then there’s Robin Arzón, an ex-corporate lawyer and vice president of Fitness Programming known for her swagger and insistence that, “You didn’t wake up to be mediocre today.”

Did instructors like Arzón feel the pressure coming from the other side of the screen, as cooped-up members log on for an escape?

“I think pressure, it can actually be a very good thing,” Arzón told Yahoo Finance, noting that instructors now have a “greater sense of responsibility.” She added, “We understand that it's more than the physicality of what we do now more than ever — So, we better bring it.”

That can include “bringing it” with inspirational soundtracks, like when Arzón ended a March 19 ride with “Hold on” by Wilson Phillips, a hit from 1990 that has new resonance 30 years later.

“Have some grace with yourself right now. We’re all doing our best,” Arzón told riders, as she pedaled in front of rows of empty bikes in the Peloton studio. “We’ll be here. We’ve got you. And when you’re trying to navigate this new normal, hop on your bike, open up the Peloton app ... We need this moment. It is grounding when the world is changing every single minute.”

Robin Arzón, VP of Fitness Programming, introduces "Live from Home" classes.
Robin Arzón, VP of Fitness Programming, introduces "Live from Home" classes.

The world continued to change at a rapid clip. The killing of George Floyd in late May spurred nationwide protests and created perhaps the biggest challenge of 2020 for Peloton’s CFO, who noted that Peloton later issued a pledge that included anti-racist initiatives as well as a boost in pay for its own hourly workforce. Effective July 1, all of Peloton’s North American and European-based, non-commissioned hourly employees got a $3 hourly pay increase — making the starting hourly rate $19.00.

“We were all you know deeply saddened by everything that was going on, and just, you know, trying to be there for the team in a virtual way just was, was a lot harder,” Woodworth said.

Peloton quiets Wall Street’s concerns

While Peloton’s staff is eager to get to the office and “be back together,” according to Woodworth, the pandemic itself has unquestionably improved its financial outlook. That’s despite the assertions from short seller Citron Research, which shredded Peloton in a lightly researched note in March.

Keep in mind, profitability worries on Peloton existed up until the September 2019 IPO right on through March of this year, when the stock hit a low of $19.51 a few weeks after reporting a $55.4 million quarterly net loss. That earnings report in early February was a continuation of Peloton’s losses since it was founded by John Foley in 2012.

SAN FRANCISCO, CA - SEPTEMBER 06:  Peloton Co-Founder/CEO John Foley speaks onstage during Day 2 of TechCrunch Disrupt SF 2018 at Moscone Center on September 6, 2018 in San Francisco, California.  (Photo by Kimberly White/Getty Images for TechCrunch)
SAN FRANCISCO, CA - SEPTEMBER 06: Peloton Co-Founder/CEO John Foley speaks onstage during Day 2 of TechCrunch Disrupt SF 2018 at Moscone Center on September 6, 2018 in San Francisco, California. (Photo by Kimberly White/Getty Images for TechCrunch)

But now it’s a different ballgame in large part because of the pandemic, which has shifted an entire country to working out from home to avoid often dirty (and closed) gyms. Peloton has reported $158.4 million in net profits over the past two quarters. Total members on the platform have swelled to 3.6 million in the most recent quarter from 2 million for the three months ended Dec. 31, 2019.

For the fiscal year ending June 30, 2021, Peloton sees $3.9 billion in sales and $300 million in adjusted operating profits. Its prior fiscal year — mostly pre-pandemic — the company posted $1.83 billion in sales and $117.7 million in adjusted operating profits.

“We see Peloton increasingly capitalizing from a secular shift in consumer behavior amid extended social distancing, with elevated demand we're seeing for at-home fitness (longer order to delivery for ‘couple more quarters’) and reflected in sustained low churn levels,” says CFRA analyst Camilla Yanushevsky.

Peloton spins into 2021

Obviously, the pandemic boosted Peloton’s sales this year, and its profits. But would more people have eventually purchased connected bikes, even without the pandemic?

Woodworth, Peloton’s CFO, believes the shift to digital in-home fitness began pre-pandemic, just like how other industries like movies and gaming have moved to the home. “We always had believed that fitness was one of the last bricks and mortar businesses that would migrate to the home through streaming digital media and I think now with what we've been faced ... it's just accelerated,” Woodworth said.

Of course, we’ll never know what Peloton’s business would look like without the pandemic. For their part, Yahoo Finance’s Mitchell and Asymkos say their devotion to Peloton will outlast the current crisis. But, asked if they would have eventually bought Pelotons if there were no pandemic, they both did not hesitate to say “no.”

As Mitchell said, “I didn’t see a need for it pre-pandemic.” She sees the need for it now, and others may share her hesitation to go sweat with a large group of people breathing heavily in a gym. Multiple surveys have found that gym members don’t want to go back.

While Peloton faces legitimate threats from cheaper competing bikes, one thing is clear: The pandemic has changed the way we exercise, perhaps for the long-term — and that’s a win for Peloton.

Erin Fuchs is a deputy managing editor at Yahoo Finance. Brian Sozzi is an editor-at-large and anchor at Yahoo Finance.

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