Inside Peloton's rapid rise and bitter fall — and its attempt at a comeback

On the nighttime of Sept. 26, 2019, hours aft Peloton shares went public, employees dined connected seafood and sipped champagne successful the glittering halls of Hudson Yards arsenic they discussed what they'd walk their newfound insubstantial fortunes on.

During a lavish fete successful the company's soon-to-be New York City headquarters, immoderate talked astir the caller car they'd buy, the 2nd location they'd ever longed for, the pupil loans they'd yet beryllium capable to wage off. 

"It felt similar thing could get successful the mode of each that," said a erstwhile technologist who attended the party. 

It was the opening of what erstwhile employees described arsenic Peloton's property of "opulence" — a little epoch fueled by unsighted optimism and hubris that took its banal to dizzying heights lone for the institution to endure a stunning autumn from grace a small implicit 2 years later. 

Since reaching a highest intraday stock price of $167 successful December 2020, Peloton's banal has crumbled to $13.60 a share. That's astir fractional of its opening stock terms of $27, aft the IPO was priced astatine $29. Its marketplace cap, which erstwhile surged to much than $45 billion, has shrunk to astir $4.7 billion. Shares are up astir 71% truthful acold this year, however.

The connected fittingness institution carved its mode into the mainstream arsenic a solution to shuttered gyms during the aboriginal days of the Covid pandemic. But past it made the captious mistake of readying for that request to last, adjacent arsenic the microorganism waned and lockdowns lifted.

The institution has been gutted by plummeting sales, a shift successful user demand and a ungraded aft a six-year-old died and dozens of others were injured successful incidents involving the Tread+, leading to a costly recall. 

The cascading problems led co-founder and CEO John Foley to measurement down conscionable implicit a twelvemonth ago. He was replaced by Barry McCarthy, a erstwhile Spotify and Netflix executive, who ushered successful an assertive turnaround program and a caller epoch of fiscal rigor.

Since McCarthy took the helm, he's managed to bring the institution backmost from the brink of extinction by improving its escaped currency travel levels from antagonistic $747 cardinal to antagonistic $94 cardinal arsenic of the extremity of its astir caller fiscal quarter.

In the 3 months that ended Dec. 31, Peloton's nett losses shrank to $335.4 million, the narrowest nonaccomplishment it has marked since its 2021 fiscal 4th quarter. The institution celebrated the 4th arsenic its champion show since McCarthy took over. In an upbeat missive to shareholders, helium offered a glimmer of anticipation that a comeback could beryllium connected the horizon. 

But the institution is inactive losing hundreds of millions of dollars each quarter, and request for its signature connected fittingness products continues to fall. It has each but stopped manufacturing the machines arsenic it works to offload $1.05 cardinal successful inventory arsenic of the extremity of its astir caller fiscal quarter. Between July and December past year, Peloton spent $0 connected work-in-process inventories, oregon products that are actively being manufactured, securities filings show.

Under McCarthy's leadership, Peloton is pivoting distant from hardware and transforming into a software-first institution that's focused connected its contented — and the sticky subscription gross that it brings.

But the jury's inactive retired connected whether that volition beryllium capable to prevention the business.

For this report, CNBC spoke with 16 existent and erstwhile Peloton employees, the bulk of whom declined to beryllium identified due to the fact that they are not permitted to talk publically astir the company. Peloton did not supply a ceremonial remark for the communicative but did supply entree to executives.

Foley, meanwhile, spoke concisely with CNBC by phone, saying that portion Peloton's banal has fallen, the institution has not.

"It is simply a fantastic institution and a fantastic squad and a fantastic community," Foley told CNBC. "And I similar their chances." He declined to remark further.

When Foley, a erstwhile Barnes & Noble executive, created Peloton successful 2012, helium sought to seizure the popularity of rotation classes specified arsenic SoulCycle and bring them to the surviving rooms of busy high-earners. 

At first, the company's stationary rotation motorcycle that came with virtual classes developed a loyal following, but it was small. That changed erstwhile the Covid pandemic deed successful aboriginal 2020, triggering lockdowns and shuttering gyms.

Demand for Peloton's bikes skyrocketed acold beyond its expectations, and it was seeing abrupt maturation it had initially hoped to acquisition implicit 5 to 7 years. The institution became a Wall Street darling and a household name. 

During virtual all-hands meetings, Foley would archer unit the company's explosive maturation was conscionable the opening and the banal terms would scope $1,000 a share, 3 erstwhile employees said. 

"There was a batch of unsighted spot ... We each were like, okay, let's go," recalled the erstwhile engineer. "They ever had this unsighted optimism wherever they were similar ... we're going each the mode to the top."

Peloton acceptable disconnected connected a hiring spree, developed caller connected fittingness products and spent immoderate it took to get bikes delivered to homes. Field operators were offered thousands successful hazard wage to support delivering bikes done the pandemic's darkest days. In immoderate regions, the institution was spending astir $500 per last mile delivery, not counting however overmuch it outgo to get the instrumentality shipped from overseas, a erstwhile tract operations supervisor said. The extremity was to support last mile transportation rates astir $250 per transportation successful immoderate regions, the supervisor said.

Demand for Peloton's instrumentality continued to detonate arsenic the pandemic trudged on. So did its stock, making immoderate of its employees and executives abruptly precise wealthy, astatine slightest connected paper. 

"The bulk of us, we weren't naive to the information that, particularly successful New York, determination were radical extracurricular successful refrigerated trucks due to the fact that they didn't person capable country successful the morgue, but astatine the aforesaid time, we're looking astatine our Morgan Stanley accounts and present we're each worth, you know, millions," said a erstwhile designer, whose nett worthy reached $5 cardinal astatine the tallness of Peloton's success. "I don't deliberation immoderate of america were rooting for the pandemic to continue, but arsenic agelong arsenic it was going on, it was evidently bully for business, and it was bully for a batch of people's slope accounts."

In November 2020, Peloton said its income surged 232% to $757.9 cardinal compared with the prior-year period. By the extremity of the vacation play that year, the institution was celebrating its archetypal $1 cardinal income quarter and a uncommon nett — $63.6 million. 

While request stayed strong, worldwide proviso concatenation constraints made it hard to support up. Customers began to kick astir monthslong transportation delays, arsenic good arsenic issues with the bikes erstwhile they yet arrived.

In response, Peloton spent $420 cardinal to acquire fittingness institution Precor and its U.S. manufacturing capabilities. Later, it pledged different $100 cardinal to airlift products to debar clogged ports — a determination wide criticized internally arsenic a horrible decision, according to galore erstwhile staffers. 

"They were like, we person truthful overmuch money, we're unstoppable," said the erstwhile engineer. "We conscionable request to present the bikes, we conscionable request to get the bikes into homes, we conscionable request to bash this."

Peloton's unit became truthful bloated, the erstwhile technologist said, it felt arsenic if the institution was hiring arsenic a signifier of "empire building" that didn't "feel based successful existent need." One erstwhile worker said determination wasn't capable enactment to enactment engaged and determination was thing to bash fractional the time.

"I deliberation each of america were drunk connected the maturation that Covid brought, and nary 1 paused to accidental like, hey, possibly this is simply a crippled of philharmonic chairs, and what happens erstwhile the euphony stops?" said the erstwhile designer. "Like, we can't support expecting radical conscionable to enactment wrong and not spell to the gym."

In May 2021, the institution announced a $400 cardinal concern into Peloton Output Park — a sprawling mill it sought to physique successful Ohio to enactment up its U.S. manufacturing capabilities and trim its reliance connected overseas partners.

Behind the scenes, though, the institution was hemorrhaging money. Revenue had begun to dilatory dramatically arsenic Covid vaccines became wide accessible and people began venturing retired again.

"We were trying to drawback up and spending, spending, spending to drawback up, and by the clip we yet caught up, request fell off," said the erstwhile tract operations supervisor. "Over clip we benignant of saw however the institution responded to the pandemic and past misread the pandemic. It was benignant of like, wow, it benignant of feels similar we got sold down the river."

Peloton's banal terms was dilatory sliding down, and employees began to panic arsenic they saw their insubstantial wealthiness evaporate. "People mislaid everything," the erstwhile technologist said. "People mislaid their dreams."

Colleagues with children who planned to usage their net to bargain houses and turn their lives saw those hopes dashed, the idiosyncratic said.

"We ever had millions of loyal subscribers who loved the product, conscionable similar emotion it, and it was hard to recognize ever however we f---ed that up truthful severely considering the loyalty and the cult-like quality of the full thing, you know?" the erstwhile technologist said. "It was like, wait, what?"

By the extremity of March 2022, the company's net losses reached $757.1 million, which is much than the institution mislaid betwixt the 2017 and 2021 fiscal years combined, according to securities filings.

By June 30, the extremity of Peloton's fiscal year, the company's full-year nett nonaccomplishment ballooned to $2.83 billion. 

When McCarthy took implicit arsenic CEO past February, immoderate disquieted the institution would beryllium truthful focused connected dollars and cents, it would suffer its innovative spirit. But others breathed a suspiration of alleviation to person what felt similar an big successful the room, idiosyncratic who'd beryllium capable to cleanable up a multibillion-dollar mess. 

"He seemed the polar other of John," said a erstwhile manager connected the accumulation squad who worked nether McCarthy for respective months. "I deliberation everyone was benignant of like, OK, this is simply a existent morganatic concern feline with a coagulated background."

"We were each hopeful," the erstwhile manager said. "I was surely hopeful with his acumen and experience, but I knew it was going to travel with immoderate precise hard decisions."

Soon, the institution pulled the plug connected Peloton Output Park, shifted logistics and manufacturing to third-party suppliers, tried to merchantability Precor, and cut its workforce by much than half. 

Since the opening of July, the institution has closed oregon committed to shuttering 52 of its 136 planetary retail stores, and workers who can't beryllium absorbed into different stores are inactive being laid off, the institution said.

While McCarthy has said astatine slightest doubly that job cuts were finished, the institution has besides made wide its retail restructuring is ongoing and volition instrumentality time.

Since helium took over, McCarthy has developed a estimation for being precise hands-on. A caller refrain — "Barry says" — has begun echoing done its Slack channels and emails.

"They'll beryllium like, 'OK, we request to get this done due to the fact that Barry said we needed to bash this,'" said a decorator who works astatine the company. "I've worked for companies the aforesaid size arsenic Peloton before, and usually the CEO is not saying to bash something." McCarthy, connected the different hand, is "very progressive successful the merchandise and has been truly pushing the concern forward," this idiosyncratic said.

The turnaround plan, mass layoffs, changeless media sum and upheaval successful the company's C-suite person near immoderate employees stunned. Others, though, were speedy to travel to the company's defense. 

"Current strategy is spot on, things are going well, morale is high, Barry is simply a visionary, we're excited for the upcoming year," 1 manager said successful a LinkedIn message. 

Peloton's main contented officer, Jennifer Cotter, who joined the institution successful 2019, said becoming the CEO of a founder-led institution would beryllium a "daunting" situation for anyone, but she was "amazed astatine however rapidly [McCarthy] zeroed successful connected the areas we needed to absorption on."

"Barry came successful astatine a clip erstwhile that was the person we needed," she told CNBC. 

Peloton's banal soared 26% connected Feb. 1, erstwhile the institution announced its fiscal second-quarter results, which indicated immoderate advancement successful McCarthy's turnaround plan. For the past 3 quarters, subscription gross has outweighed hardware sales. About fractional of the radical who wage for Peloton's integer app are utilizing it connected different companies' hardware, a conception that was erstwhile anathema to the company's vision. McCarthy antecedently told CNBC that Peloton whitethorn beryllium astatine a "turning point." 

Instead of processing caller connected fittingness products, Peloton's merchandise squad is focused connected improving the hardware they already person by adding caller features, and employees person felt a displacement of absorption toward the company's contented and app.

Cotter, the brains down Peloton's contented machine, was told to support doing what she was doing erstwhile McCarthy took implicit and to not "let anyone get successful your way," she recalled. She besides noted contented is "pretty interconnected" with merchandise and determination is simply a "real symbiosis" betwixt some sides.

While the evident displacement has led to immoderate friction betwixt Peloton's merchandise and originative teams — 1 worker said the institution was experiencing an "identity crisis" — McCarthy appears to beryllium leaning into the halfway of what has ever made Peloton special: its virtual fittingness classes. 

"Fitness has been beauteous literal successful the world, and there's tons of radical that person been systemically near retired of fitness, and we mean to marque those individuals consciousness included successful immoderate that means for them," Cotter said. "I stake my full vocation connected the information that this emergence is happening, so, it's happening."