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August 31, 2021

Peloton slashes prices as its performance begins to falter

By MarketLine

Fitness technology firm Peloton delivered a disappointing sales outlook in its latest quarter, marking a downward turn in its fortunes.

In the fourth quarter ending June 30th, Peloton’s revenue rose 54% to $937m, including a 132% increase in subscription revenue to $281.6m. However, it reported a net loss of $313.2m, compared to a profit of $89.1m the year earlier.

The company only expects revenue of $800m in the first quarter of the new financial year, which is far below previous market estimates of $1bn, marking a slowdown in its financial performance, which was bolstered by the Covid-19 pandemic and lockdown restrictions.

The news follows the company’s recent decision to slash the price of its original Peloton Bike by 20%, from $1,895 to $1,495, the second time in a year that the firm has cut the price of its Bike product. The price drop will take effect in all of its markets, including the US, UK, Canada, Australia and Germany.

Peloton stated that the decision to slash the price of its flagship bike would hit near-term profitability, which sent its shares down 15% in afterhours trading on 26 August.

Supply chain and safety issues have plagued Peloton

Peloton currently manufacturers its products in third party facilities in the Asia-Pacific region (mainly in Taiwan) despite most of its customers being in the US. While this has helped keep manufacturing costs down, it has also led to long shipping delays, caused by both heightened demand and logistical issues brought about by the Covid-19 pandemic.

In response to this issue, Peloton is constructing its first US factory, which will help it keep up with surging demand for its high-tech exercise equipment. The new factory, located in Troy Township Ohio, will receive an investment of around $400m and will produce its bikes and treadmills. The company hopes that once the domestic factory finally opens, this will help bring prices down.

The company’s success has also been tainted by safety issues. On 5 May, 2021 Peloton recalled treadmills in the US and UK over a series of safety issues following investigations by a US watchdog. In the US, 125,000 Tread and Tread+ machines are currently being recalled following the death of a six-year-old child. In addition to the death, there have been about 72 reports of adult users, children, pets and objects being pulled under the rear of the treadmill.

Tackling these issues must continue be the company’s top priority moving forward if it wishes to improve its financial performance over the coming year.