Peloton (PTON:NASDAQ) shares crash on production halts and weak consumer demand

Peloton (PTON:NASDAQ) shares lost almost a quarter of their value in a single trading day after news that the company was temporarily halting production of its connected fitness products due to slowing consumer demand.

Peloton closed Thursday down 23.93% at $24.22, bringing the stock’s market value to $7.9 billion. Peloton shares hit a 52-week low of $23.25 during intraday trading. Peloton has shaved off over 80% of its value ($40bn from $50bn valuation last January) in the last year and is currently trading below its IPO price.

Internal documents from the company indicate that Peloton plans to pause Bike production for two months, from February to March. The company has already halted production of its more expensive Bike in December and will do so until June. It won’t manufacture its Tread treadmill machine for six weeks, beginning next month. And it doesn’t anticipate producing any Tread machines in fiscal 2022, according to the documents. Peloton had previously halted Tread+ production after a safety recall last year.

Peloton obviously misclacluated its demand projections with so much demand was pulled forward during the coronavirus pandemic. Now the company is left with thousands of cycles and treadmills sitting in warehouses or on cargo ships, and it needs to reset its inventory levels.

The company’s confidential presentation on Thursday showed that Peloton had initially set expectations on Oct. 31 for demand and deliveries in its fiscal third quarter and fourth quarter that ended up being far too high. It reevaluated those forecasts on Dec. 14, according to the presentation, and Peloton’s expectations dropped significantly for its Bike, Bike+ and Tread.

However, Peloton said, the latest forecast doesn’t take into account any impact to demand the company might see when it begins to charge customers an extra $250 in delivery and setup fees for its Bike, and another $350 for its Tread, beginning at the end of this month.

Slowing demand for its products have had a ripple effect on other aspects of the company. The Wall Street Journal reports that CEO, John Foley, told employees that the company’s previously announced cost-cutting review would likely result in job losses. As of June 2021, the New York-based company employed more than 6,700 people in the U.S. and hundreds more abroad.

The company is also trying to get customers to shoulder some of the maintenance costs of its equipment. Peloton will start charging U.S. consumers for delivery and setup of some of its connected fitness devices at the end of the month. This change would no doubt have a big repercussions on future sales volumes. Considering that the company is struggling to generate revenue, let alone profit, there could be no clearer gloomier sign for investors.

Ever since the vaccine roll-out and reopening of the economy, Peloton has been less than a shadow of itself. A little more than a year ago, Peloton was facing too much demand and not nearly enough supply. Pelton shares rallied more than 440% in 2020.

However, as gyms have reopened, consumers don’t appear to be throwing as much money into at-home fitness equipment. At the end of its latest quarter, Peloton counted 2.49 million connected fitness subscribers. It only added about 161,000 net new members in the period ended Sept. 30, its lowest growth in two years.

The company is scheduled to report its fiscal second-quarter results on Feb. 8 after the market closes. Analysts in recent weeks have been trimming their expectations for Peloton’s second quarter as well as their price targets for the stock, projecting that Peloton had weak holiday sales, plus its market share is falling. If the earnings reports reflect analysts’ forecasts, the downward trajectory for the stock would continue for a long while.