🚴 Peloton: Treading On Thin Ice?

Tesla can't deliver autopilot this year. Beyond Meat sales fall.

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🚴 Peloton: Treading On Thin Ice?

Peloton Interactive Inc. (PTON) is in the middle of a product recall, in a U-turn from its earlier stance of product safety. Consequently, the company also reduced revenue expectations for the year. Reputation risk or not, the management continues to insist this is a short-term issue. (Tweet This)

A Show Of Defiance
Peloton seemed to be on a roll until it wasn’t. Two consecutive quarters of over $1B in revenue and ever-rising popularity of its fitness products among its users – the company’s stock was on a tear. In 2020 alone, the stock jumped 540%. Pandemic and lockdown forced users to throng to its treadmills and exercise programs in hordes.

Tread+, the high-end treadmill model, was a big hit with users. Be that as it may, Peloton had received 72 reports of adult users, children, pets, or objects being pulled under the Tread+. The injuries ranged from second and third-degree abrasions to broken bones and lacerations. There were also multiple instances of the touchscreen detaching and falling off the treadmill.

Just as the Consumer Product Safety Commission evaluated these reports, news came that a child was pulled under Tread+ and had died. The Commission issued a warning and asked customers to stop using Tread+ immediately. This announcement was met with defiance by the company, which said the sign was “misleading and inaccurate.”

Damage Control
When the company announced its Q3 results yesterday, it had comfortably exceeded consensus expectations.

Revenue: $1.26B Vs. $1.1B expected
EPS: -$0.03 Vs. -$0.12 expected
Revised guidance: Q4 revenue seen at $915M (Vs. earlier projection of $1.12B).

But ever since the child’s death and CPSC warning were announced, the stock has fallen 22%. The reputation risk the company faced could no longer be ignored. It took a pummelling of the stock in the market, loss of face, erosion of brand value and weakened customer trust for the company to have a change of heart and acknowledge the issue along with a product recall.

Peloton has announced the recall of 125K treadmills and expects revenue to drop by $165M for the year. This is on top of the 27K cycle pedals the company had recalled last year since the parts were breaking off mid-use leading to leg injuries.

Peloton will now issue a full refund on Tread+ until November 2022. Its expansion plans for the product are now on hold. The company is also offering to move the equipment into a safe area at home at no cost to the user. These measures may be enough for now, but any further incidents may have repercussions that a simple product recall or replacement will not be able to address.

Market Reaction
PTON ended the day at $83.78, up 1.4%. The stock is down almost 15% this month.


Newsworthy 📰

No Autopilot: Tesla tells regulator that full self-driving cars may not be achieved by year-end (TSLA -1.10%)

No Demand?: Beyond Meat loss exceeds forecasts on higher costs, slow restaurant sales (BYND -2.08%)

Surge: Square sails past profit estimates as bitcoin volumes surge (SQ -3.42%)


Fun Fact of The Day 🌞

Kangaroos cannot walk backwards

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