🚲 Is Peloton Cycling Itself Into Trouble?

Probe against Tesla's autopilot; 3M's cases reopened.

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🚴 Peloton: Cycling Itself Into Trouble?

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Exercise equipment manufacturer Peloton Interactive Inc. (PTON) is facing a class-action lawsuit after two customers complained of membership fee overcharge. If admitted by the judge overseeing the case, this lawsuit won’t help the stock that was already battered in the first half of the year. (Tweet This)

Willful Overcharging?

The complaint filed in the Federal District Court of Manhattan accuses the maker of at-home stationary bicycles of improperly charging sales tax on membership in three states – New York, Virginia, and Massachusetts. It accuses Peloton of “willfully and knowingly overcharging its subscribers” to maximize its profit.

Peloton has revolutionized at-home workouts by enabling customers to stream live and on-demand exercise classes. To sign up for these sessions, customers can select a $39 per month subscription that gives them access to Peloton’s full catalog of classes or a $12.99 per month subscription to just the app.

When signing up, subscribers must agree to the company’s membership terms and “any applicable taxes and other charges.” At issue is the sales tax that customers say the company has charged them while knowing fully well these states provide tax exemption for digital goods.

The two complainants have alleged the company charged them a 6% sales tax every month for almost two years, and when they demanded a reimbursement, Peloton flatly refused to refund the amount. The company changed its taxation practices in these three states at the beginning of 2021.

The company has been dragged to court, and the customers demand class-action status for residents in all three states. They’re seeking available compensatory, statutory, and punitive damages.

Peloton – Cycle Or Caffeinated Drink?

Peloton, for its part, has come up with the standard refrain of not commenting on ongoing litigation. However, this isn’t the first time that the company finds itself in a legal wrangle.

In May, the Product Safety Commission issued warnings against Peloton’s Tread+ high-end treadmill model stating 72+ instances of children and pets being pulled under it. The death of a child led to the product being recalled and free servicing at home to fix the issue, if customers so chose.

Even then, the company did so grudgingly and was defiant in the initial phase instead of acknowledging and accepting the issue on hand. Eventually, 125K treadmills were recalled indicating a revenue drop of $165M for the year. Post the product recall saga, the company will repair the touchscreen console according to the US regulator’s requirements starting this month.

Separately, there’s the tiff with a beverage company called Peloton Cold Brew. Peloton Cold Brew LLC got its trademark to use the word “P” for coffee drinks back in 2017. Peloton (the protagonist of today’s story) filed a plea with the United States Patent and Trademark Office to invalidate Peloton Cold Brew’s trademark.

Peloton Cold Brew dragged Peloton Interactive to court, insisting that the trademark is in a different sector altogether and that the question of confusion does not arise.

These affairs have put a dampener on Peloton’s share price, which had just begun a recovery from the lows of May. Peloton seems precariously poised, at least as far as the class-action lawsuit is concerned.

Will the company be able to steer away from these troubles on a stationary bike? It’ll depend on whether it’s able to convince the sitting judge of its innocence. But that’s easier said than done!

Market Reaction
PTON ended the day at $110, down 0.79%.

Company Snapshot 📈

PTON $110.00 -0.88 (0.79%)

Analyst Ratings (29 Analysts) BUY 79%  HOLD 14%  SELL 7%

Newsworthy 📰

Scrutiny: US opens probe into Tesla’s Autopilot over emergency vehicle crashes (TSLA -4.32%)

Change: General Motors to replace battery modules for some Bolt EVs after fire risk (GM -1.30%)

Reopen: US court revives nearly 6K lawsuits over 3M surgical warming device (MMM +0.87%)

Later Today 🕒

  • Walmart Inc. Earnings (WMT)
  • The Home Depot Inc. Earnings (HD)
  • Agilent Technologies Inc. Earnings (A)
  • Cree Inc. Earnings (CREE)
  • Krispy Kreme Inc. Earnings (DNUT)
  • 6:00 PM IST: Retail Sales
  • 6:45 PM IST: Industrial Production

Fun Fact of The Day 🌞

If Walmart is classified as a country, it would be the 24th most productive country in the world

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