Peloton Went From Pandemic Winner to HBO Punchline

Less than a year later, Peloton slashed the price of its bikes. It later warned investors that annual sales might come in 20% below the company’s projections, citing Americans’ return to normalcy as Covid-19 cases waned. The company implemented a hiring freeze amid widening losses.

Peloton’s rise into a juggernaut with a $50 billion market value and decline to a company worth less than $15 billion have been marked by miscalculations and reversals by Chief Executive John Foley and his top lieutenants. The moves offset opportunities and compounded challenges caused by the pandemic, from skyrocketing consumer demand to a global supply-chain quagmire.

“Management’s view was that there was a paradigm shift,” in which most people would continue to favor home workouts once the pandemic subsided, Raymond James’s Aaron Kessler said. He said the company’s consumer surveys showed the opposite and, in February, it downgraded Peloton stock on the belief that the company’s growth projections were overly rosy. “It was a false narrative,” he said. “People did want to return to the gym.”

Peloton’s leaders acknowledged they both over- and underestimated demand at times. In early 2021, the company came under criticism from consumer advocates and U.S. safety regulators after it refused to recall its Tread+ treadmill before subsequently recalling the machine. The company, meanwhile, said it is rolling out deals to fend off rivals, which were almost nonexistent two years ago.

Peloton has said in statements that it believes the company has the right amount of capacity and that it is taking “significant corrective action” to improve profitability in future quarters. “Our long term thesis of fitness moving to the home is unchanged,” the company said. Mr. Foley declined requests for an interview or comment.

“The growth rate people are expecting from this business is simply unattainable,” said UBS analyst Arpine Kocharyan. The firm in May put a rare and controversial sell rating on Peloton stock, arguing that Peloton’s forecasts and stock price hinged on unrealistic growth and earnings projections by the company. She said she continues to believe that Peloton’s model of pairing fitness equipment, virtual classes and consumer financing is a sound one.

Peloton has more than 2.5 million paid subscribers, more than triple its base before the pandemic, many of whom also are investors. Peloton has rolled out new products and expanded beyond the U.S. Subscribers continue to flock to Peloton’s online classes. Peloton generated more than $4 billion in annual revenue for the fiscal year ended June 30, compared with $915 million two years prior.

“I have had positive experiences with the company thus far which has solidified my belief in the company’s products,” said Dr. Mark Anthony, a physician who owns a Peloton bike and treadmill and invests in the company. He said so far he has lost money on the investment but believes the company will grow in the long run. “They offer a fantastic product and I continue to buy their stock.”

In the near term, Peloton could benefit from a rise in Covid-19 cases because of the Omicron variant that is prompting cities and states to implement mask advisories and vaccine mandates for indoor activities including gyms.

Peloton’s stock has lost more than three-quarters of its value from a December 2020 high, erasing most of its pandemic-era gains. It now trades around $37, much closer to its $29 initial public offering price than its $171 high.

In spring 2020, as coronavirus bore down on the U.S., Peloton joined companies such as Zoom Video Communications Inc., Netflix Inc. and Clorox Co. , that enjoyed explosive growth with much of America locked down.

At that point, Peloton was growing though not profitable. Co-founded by Mr. Foley, a former Barnes & Noble Inc. executive, the company began selling bikes in 2014 and opened its first studio in Manhattan in which instructors led classes that were also beamed into members’ homes. It went public in September 2019.

Then the pandemic hit and demand exploded. Peloton juggled keeping bikes and treadmills in stock while managing its live studios and more than 100 retail locations in North America and Europe.

Executives assured Wall Street that the team was keeping up.

During a May 2020 quarterly earnings call, an analyst predicted Peloton would run short on inventory over the summer, based on company data.

Finance Chief Jill Woodworth responded that inventory wasn’t a good predictor of supply. “We feel very confident we can deliver from a supply-chain perspective,” she said.

Soon customers were complaining about long wait times and missed deliveries, even as Peloton continued to advertise in search of new orders.

In November 2020, Mr. Foley apologized. “It pains us that we’re underperforming,” he said. A few months later, the company said it would push back the launch of a new treadmill, double the size of customer-service operations and start shipping exercise equipment by air to ease delays.

Logjams at ports in Asia, where Peloton made most of its products, and a shortage of shipping containers and truck drivers, were jamming supply-chain operations around the world.

Peloton paid $420 million to acquire Precor Inc., one of the biggest global manufacturers of fitness equipment, and announced plans in early 2021 to build a $400 million factory in Ohio.

Revenue from equipment sales and subscriptions to its classes climbed; the company turned its first profit and delivered another two profitable quarters.

By the summer of 2021, Covid-19 vaccines were available and Americans began returning to gyms, offices and travel. Online marketplaces were filled with people selling exercise equipment, including Peloton bikes.

In August 2021, Peloton lowered the price of its original stationary bike by 20%. Mr. Foley said the price cut didn’t reflect weaker sales and that he remained confident in the company’s annual forecast. Rather, he said, the move was aimed at staving off competition and “democratizing access to this great fitness.”

The company scrapped its annual forecast three months later. Peloton reported its smallest quarterly gain in subscriber growth since it became a public company and said fewer people are joining online workouts.

The company’s cash reserves were down 66% at the end of September compared with its position at the end of March. Ms. Woodworth, the CFO, said Peloton didn’t need more cash.

Twelve days later, Peloton announced a $1 billion stock offering. “We did not need to raise capital, rather, we chose to,” a Peloton spokeswoman said last week. The money would go to potential future expansion or acquisitions, she said.

In December, a marketing plug backfired when a Peloton bike was blamed for the death of a character in HBO’s “Sex and the City” reboot. Peloton said it didn’t know the plot when it agreed to have one of its instructors and its bike appear in the episode.

The company tried to capitalize with an online ad featuring actor Chris Noth and the Peloton instructor, showing the pair ready for another spin on the bike. But Peloton deleted the ad soon after when Mr. Noth was accused of sexual assault. Mr. Noth has denied the allegations.

“We’ve had moments when our stars shined bright,” Mr. Foley said in May 2021, as the company announced it would recall its treadmills. “And situations like right now, that we feel like we have some work to do to get back on the right side of the line.”

Write to Sharon Terlep at sharon.terlep@wsj.com