The Rise and Fall of Peloton | Pedal On | 3

0:06I'm David Brown and this is Business Wars.

0:30In 2020, at the height of the pandemic, more than one million consumers purchased Peloton bikes. After all, Peloton was the it workout. SNL even spoofed the company's famously enthusiastic instructors in this sketch from 2021 featuring the Pelotont, a bike with classes powered by negative reinforcement. Let's give it up for Mike, who's working out in his garage. Oh, no, this is my living room. What? I feel mentally broken down, but hey, I can see my abs. But now that folks have returned to in-person workouts, the bike has become more of an expensive clothing rack for some. With the hype dying down, Peloton is scrambling to find their next big thing.

1:14Recently, they've introduced new features like AI-powered personalized coaching, integrations with external fitness trackers like Apple Watch and Garmin, comfier bike seats, and voice control. But is that enough to keep them peddling? Between its CEO shakeups and major layoffs, many on Wall Street are wondering whether the company will get acquired by a bigger fish. Think Nike or Apple. Peloton's current CEO, Peter Stern, has shut down these whispers for now, but only time will tell. Business reporter Lauren Thomas has had her eye on Peloton since its peak. She covers mergers and acquisitions and shareholder activism for the Wall Street Journal.

1:55Before that, she covered Peloton for CNBC, where she documented the company's rise and subsequent fall. Today, we're talking about what's next for Peloton and how they plan to grow beyond the bike. Later, we're speaking with an independent fitness founder who experienced a similar challenge as she grew her own online workout community. That success helped her launch a clothing brand, one that's been worn by Lizzo, Jonathan Van Ness, and even Taylor Swift. Cassie Ho is the founder of the online fitness channel Blogilates. It started as free at-home workouts on YouTube and quickly evolved into a community with millions of loyal fans.

2:37Cassie used this as an opportunity to expand the business and pursue her lifelong dream of fashion design. Now her brand PopFlex has taken over the internet, with videos of her designs consistently going viral. Cassie joins us to share her story and explain how she took her business from YouTube workouts to a fitness empire. Grab your sweat towel and have water at the ready because all that is coming up.

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5:16Lauren Thomas, welcome to Business Wars. Thank you for having me. When did Peloton first land on your radar as a journalist? Do you remember when you started covering it? Yeah, to be totally honest, I was not like an OG Peloton fan or even follower aware of the brand. I probably didn't start paying attention to Peloton until it went public. It's IPO. It was about September of 2019. So I was at CNBC at the time, was covering a lot of these startups. And there was a wave in which many of them, these BC-backed companies, private companies, were looking to go public, starting to go public. And then, lo and behold, there's Peloton.

6:01That's really when the company, as a business journalist, first landed on my radar. You know, that's so interesting because I think that that's true for me, too. I had not heard about the Peloton device until I heard the IPO, right? And it put it on so many people's radars. Exactly. It was more of like a business story for me than it was something that I was really following as a consumer. At the time, 2019, you know, day to day, I'm like working out at the gym and I had different habits and just my own personal routine. So it just wasn't necessarily a product that I was I was familiar with. Well, did you ever get around to actually exploring Peloton as a consumer?

6:41Yeah. No, it's a great question. So then fast forward to 2020 and then I suddenly fit in with everyone else. And we all bought Peloton bikes and especially in New York. In a way, Peloton brand became synonymous, for better or for worse, whether or not the company liked it or not. But it was just synonymous with staying at home, stay at home lifestyle and being stuck at home. You're looking for things to do. And this was something to do. And it was a fun way to exercise. And so the brand, I think, and just the name Peloton became so tied to COVID and everything that it was about. You know, maybe I'm misremembering this.

7:20You probably remember, but Sex and the City, when they did the reboot, right? Just like that, I think it was called. Wasn't there some plot thread where characters suffered a heart attack? Yes, that's it. That's it. Yeah, yeah. No, that was an interesting moment. I think the stock actually fell on that headline, I remember. And it's just interesting. It shows the power of branding and marketing. This was more of a joke in a TV show. But yeah, if they weren't already on your radar as a consumer or a TV watcher, I think that certainly put the brand on more people's minds. But what's really fascinating to me, and we got into this a little bit in our exploration during our series on Peloton, but there was this idea Peloton founders had originally, and that was that someday Peloton would in a way replace the gym as a place to go.

8:14And COVID became kind of the manifestation of that expectation. And I sort of get the sense that people at the very top of Peloton, this would have been around the time of the IPO shortly thereafter. after and and it's just exploding everyone's ordering peloton bikes peloton can't keep up with the demand and there's this real sense that maybe maybe they saw the future maybe that maybe it was the end of the gym do you remember that yeah well it's interesting because you go back the company really started you know with an idea of course it was back in 2012 i think they did a Kickstarter campaign, you know, to raise money around this idea of this bike, this workout bike, where you could then have other activities, other types of content on screen and just have like an all-in-one workout at home.

9:03So they start with this idea. And I don't know if at the time, like anyone truly could have predicted that, you know, a pandemic certainly was staring us down in the future just a couple of years later. But it certainly, I mean, it pulled forward, like you were saying, an incredible amount of demand, which then raised obviously a lot of interesting questions about the business and just the financial side of things. Yeah. You know, once upon a time, I had a business class with someone who had a lifetime full of jobs where he was bringing possibly defunct companies back to life, breathing new life into it.

9:39And he told our class one day, he said, you know what? And he mentioned the name of a very famous gym that's all over the country. And he said, you know what? They're really in the business of doing? And everyone said, sure, they run gyms all across the country. And he goes, no, no, no, no, no, no, no. He said, I've had discussions with this company. And if you talk to the leaders of this company, they tell you their real business is selling contracts. It's selling contracts. And it's funny to me the way that companies see themselves internally versus the way that the people who experience their products often see the company.

10:12A lot of people sort of saw Peloton as a way to work out. It's a number of reasons why someone would get a Peloton bike. But I sort of wonder if, in a way, Peloton was really selling a different thing. They were selling content because that was really the innovation of Peloton. There had been spin classes and stuff like that before this bike came along, right? Oh, yeah, exactly. Great point. Because, again, even me here in New York, like you go to SoulCycle, you know, there were plenty of classes where you could go to a studio and you're surrounded by people. And that was a fun experience. Right.

10:48This this idea of a spin bike was was nothing new. And in fact, you know, it's probably been around for ages, those old old ellipticals or whatever that my grandparents would have at home. but I do think exactly you hit the nail on the head what they were able to achieve and I think this is in part why then it becomes a public company and investors got so excited about the stock was they really created this community people that used Peloton products kind of became part of this Peloton lifestyle and brand and there would be forums online if you know people connecting over this fitness item. That was really unique, I think.

11:26And in part, like what was so inspiring about the whole story and the company's rise and all the momentum, I think it really boiled down to the fact that they were able to create this. Community. I think you put your finger on it where you were talking about that sense of community because there was something about the whole idea of getting together with others for a workout that was really appealing that Peloton seemed to sort of tap into for a digital age. Over time, too, as the product has gotten better and the technology has gotten better, they've even incorporated other ways into the bike where you can, you know, you can high five people.

11:59And it's not quite at the point where you can chat with people through your bike, but you can, you know, do a ride at the same time as a person and kind of compete with them. And so they've, you know, they've worked these other ways in where it just becomes more of an interactive experience. Well, I would imagine that Peloton would have loomed large in your coverage back around the early 2020s. Their shares were surging like, what, more than 400 percent? And of course, then you have the rebound for in-person fitness. But what about the conclusion when it comes to this hybrid market that you have a little bit of gym, a little bit of private workout?

12:35How did how did the market sort of seem to be developing over that period? Yeah, no, it's a great question. And I think even to this day, a lot of consumers, I still think, have stuck with that hybrid approach. But again, COVID just really accelerated it. And, you know, for example, even as, you know, as we got into later in 2021, 2022, especially like gyms were opening up again, you could go back to classes, you know, in-person fitness classes if you wanted to. And I covered this myself, but you saw a lot of consumers do a little bit of both. All of a sudden, it's like you realize during COVID, like, oh, you know, I need to squeeze in a workout in a pinch or it could be something else.

13:15This isn't even just relevant to workouts. But there were other ways to, you know, adapt your schedule and your routine, I guess. And you've now seen, for example, a lot of the gyms in New York, you know, you have a gym membership, but all of these gyms now have applications, your mobile apps on your phone, and they've got classes and content saved in these apps that you can also do at home. So I do think a lot of companies, not just Peloton, but a lot of companies, including gym chains, have adapted their businesses around this idea of hybrid. You know, Peloton has received so much attention for sort of making at-home fitness kind of come alive and pop.

13:52I mean, the instructors, they had huge personalities, right? I mean, there were rankings of these instructors, you know, online and that kind of, it was almost like a blending, a merge of entertainment with fitness, don't you think? Yeah, it's incredible. Some of these instructors now, they've got like millions of followers on their Instagram accounts and do things on TikTok. I think, I mean, so many of them have written books and some of them have these side hustles and they're on TV shows and they're doing ads for other brands. Like, it's really incredible. I mean, in my mind, they are celebrities.

14:27You know, they're just like any other celebrity. They've become celebrities and they have this star status. And I think it's so smart. It also, at the same time, though, as putting my reporter hat on, there's a lot of risk in that, too, because, say, some of these instructors start to leave. Well, that could be damaging to Peloton as a brand. Now, so far, I don't think we've seen a massive wave of departures of these Peloton instructors. There have been one-offs, and I've noticed a couple of them have left over time. Cody Rigsby is a very popular name. Emma Lovewell, Jess Sims, some of the OGs who are still there.

15:03It's amazing the status that these individuals have kind of created around themselves. It's super powerful. What do you make of that? Do you think that they sort of have staying power? Are they celebrities in their own right as you see it or very much a part of the sort of a Peloton subculture, if you will? Yeah, I think it's a bit of both. I think it started out Peloton, you know, full throttle, super accelerated during COVID. But as more people had eyeballs on these instructors and people like myself, you know, I was always a huge fan of this young woman, Olivia Amato, and was taking her classes.

15:36I call out numbers. That doesn't mean you need to follow them. It's what works for you today. What makes you feel proud? Think about what that is. And then you start looking at like, what is she buying or, you know, what brands is she into? And you start following them like you would any other influencer. And so they were they were influence us, these instructors. So I feel like over time, all of a sudden, it wasn't just about Peloton anymore. And I think Peloton is very smart, and they realized they didn't want to keep their instructors just trapped within the Peloton box. Because in many ways, if they're associated with these other brands and they're out there doing other things, that could be really good for Peloton too.

16:16So I feel like what I've noticed over time is just letting them out of the box a little bit more. And that's when you've seen, you know, Cody Rigsby going on Dancing with the Stars one season and, you know, multiple instructors writing various books and just being able to spread their wings a little bit so long as they're sticking with Peloton. Not really. That's going to help the business at the end of the day. Hey, it's time for a short break. We're speaking with Lauren Thompson, a business reporter who's covered Peloton ups and downs throughout the pandemic while at CNBC. And when we come back, we're going to talk about Peloton's recovery after a dramatic drop in popularity.

16:49Stay with us.

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19:37Hey, welcome back to Business Wars. Our guest is Lauren Thomas, business reporter for The Wall Street Journal, who focuses on mergers and acquisitions. Lauren, you mentioned you had a Peloton for a bit yourself. Whatever happened to your bike? I know. And I love my Peloton, by the way. So like I said, I got it in 2020, COVID, like everyone else. And I had it up until very recently, go figure. So for about five years up through, you know, it's 2025. but finally decided to get rid of it in part because, and it is very impressive, I bought this original bike and it got five years, a lot of use, but I kind of realized this thing is getting old and run down and rusty and I had pieces falling off.

20:21And I myself had also started going back to the gym and going back to classes and using various content on my phone. So really decided, you know, this thing's probably got enough use out of it and it's time to go. But it was it was a bittersweet day for sure. I think that bike probably for a lot of other people, too. There was it's very sentimental, kind of attached it to like my covid experience. And it was definitely something that that got me through a lot of, you know, tough days. That is so interesting, that sort of psychological attachment to the Peloton bike. You know, you do associate it with a certain time.

20:57Totally. Yeah. Yeah. You know, they've made a lot of updates over the years, of course, and new versions of the bike. So again, I myself was using this older version. So I'm sure if I were to ever go back and buy another, that it would definitely be time for an upgrade. I've got a hunch that you were not alone, though, here in finally making that hard decision to get rid of the bike. I know that as the pandemic restrictions lifted, Peloton's stock slid and they went through a couple of CEOs, a couple and two years, I think, trying to figure out what this post-pandemic business model was going to look like.

21:31Could you tell us a little bit about some of the bumps they faced? Yeah, definitely. You know, I remember this so well because it was early 2022. So we're kind of coming out of the worst of COVID days. And I remember doing some reporting around the fact that, you know, you could clearly see Peloton, the demand starting to drop off. And there was a mix match between that Peloton was still making so much of its products and making all of these products, but the demand for them wasn't necessarily there like it was before. And so it was almost like, you know, the trend started to reverse and you could see that.

22:10And then there were a couple of moments, again, as some of the financials started to come out that were revealing this, where the stock did take a big hit. And then at one point you had an activist investor come into the fray. And then there were rumors that Peloton was a takeover target. You know, they were in a vulnerable position and maybe someone else was going to swoop in and buy them. So there was a lot of noise again in 2022, and I think that's really when things started to trend downward. John Foley, who's the founder, was CEO at the time, and then he stepped out of that position, and they ended up bringing in Barry McCarthy.

22:45And I think he was brought in with this mission to really double down on just the subscription aspect of the business. You know, thinking about Peloton as more of a tech company in a way with subscribers and monetizing the business around that. Yeah. Yeah. Thinking about revenue streams as opposed so much to, you know, selling the hardware. There was this noticeable pivot from like hardware, hardware, hardware to how can we, you know, think about our current subscribers and growing that base and reducing the churn. And then fast forward to 2025, you have a new CEO, Peter Stern, who co-founded Apple Fitness.

23:22Exactly. No, former. He was running the Apple Fitness business for a while. So that was super interesting. It's kind of worth noting that job opening had been out there for a while, you know, after Barry McCarthy, that CEO number two, when he steps out of the picture, they were looking for somebody to replace him and took him some time to find Peter and land on Peter Stern, I guess, as a CEO. But I think, you know, he's only been in that seat for a couple of months now, but really off to the races already. There have been some noteworthy developments. In fact, I think what they just announced some new AI coaching features or something like that.

23:57Yeah. So huge rollout of products very recently. So they're kind of upgrading new bike, new tread. All of those will have, you know, minor things, including the seat cushion being more comfortable to updating to make sure that the screens on the bike can all swivel around. It goes back to this whole idea of like maybe you want to do a floor workout or you want to lift weights or you want to do something different off of your bike, but still being able to use the screen for that. And they've got these new new AI kind of capabilities that they're putting into all their software to allow the user to just have a way more interactive experience.

24:34Lauren, I want to loop back to something you were mentioning there a few minutes ago. You talked a little bit about how there seemed to be a lot of buzzards overhead, people thinking about the possibility of acquisition and what might be going on there. And I know the newest CEO, Peter Stern, has said he's not preparing Peloton for acquisition. In fact, I think we've got some audio of where he was talking at the Bloomberg Tech Summit this past June. Let's listen. I was not hired to sell this company. I was hired to bring this company back to growth, to reinvigorate it. And it is happening. We are a standalone company for years to come.