What's up guys and welcome back to wall street millennial on this channel, we cover everything related to stocks and investing the high-end home. Fitness company peloton was one of the biggest beneficiaries of the pandemic and consequently they were also one of the hardest to fall as the economy reopened. At its peak in december of 2020, the stock had risen more than 5 fold since its ipo of 163 dollars per share that gave it a market cap in excess of 50 billion dollars. But this success was short-lived.

In november they reported earnings and sales guidance falling far short of analyst expectations. This causes stock to lose almost half its value in a matter of days, instead of bouncing after the dip. As many peloton bulls had hoped, the stock has continued to grind steadily lower. Since then, and just when investors thought that things couldn't get any worse, the company announced another disaster which sent the shares free falling 24 on thursday january 20th.

So what was it that happened in recently exposed internal communications? Peloton says that demand is so low for their products, that they will completely halt production of their stationary bike and treadmill products for more than a month. Their 1 500 bikes are simply piling up in warehouses because nobody wants to buy them unable to sell their products. Even at heavily discounted prices, the company has turned to a cash burning machine in a desperate attempt to save the sinking chip they called in outside business consultants to help them reform their cost structure. In plain english, they will most likely be laying off a large percentage of their employees.

The stock has fallen 85 percent from its highs and now sits at below the 2019 ipo price of 29. If the current trends continue, this company may not even be around in a few years time in this video, we'll look at how peloton went from a 50 billion evaluation in one of the biggest darlings of the pandemic to being on the brink of complete ruin. Today we did a video about peloton a couple months ago, so, if you haven't watched it already go check it out. Link in the description below peloton is a high-end home fitness company with their cheapest stationary bike costing 1 500.

They also expanded into the peloton treadmill, which cost 2 500. In addition to the upfront costs, you also have to pay 39 per month to access their live workout class streams. So it's clearly a niche product targeting a small section of wealthy consumers, but while the company was niche in the beginning, the pandemic brought their brand into the mainstream. With gyms closed people needed a way to avoid gaining weight as they worked from home.

Peloton was the perfect tool for this within the first few months of the pandemic, their quarterly revenue, more than doubled, from 500 million dollars to 1.2 billion dollars. They also reported three consecutive quarters of positive net profit. The company's stock price soared, giving them a 50 billion dollar valuation at the peak, as well as making the founder and ceo john foley a multi-billionaire. There is so much demand for peloton bikes that they couldn't make them fast enough to take advantage of.

This peloton doubled their production capacity in 2020. This included commissioning a new factory in taiwan. Peloton's upper level management, as well as their shareholders, seemed to think that the increase in demand was the result of a permanent increase in peloton's brand value. That is, they thought demand.

Would remain high, even after the pandemic subsided to fulfill this high expected demand, they announced plans to build a 400 million factory in ohio to be operational. In 2023, they promised to hire 2 000 new workers, but just one year later, peloton would be laying off hundreds of employees, not hiring new ones. Pelton's success was short-lived after peaking. In the first calendar quarter of 2021, their revenue fell by more than a third over the preceding two quarters.

The problem is that you only need to buy a peloton once by the end of 2021. Most people who wanted a peloton had already bought one. So the available pool of potential new buyers had strung substantially. This was compounded by the fact that people are now able to go to the gym.

In august of 2021, it was clear that things were getting desperate as they cut the price of their flagship bike to fifteen hundred dollars. This is more than thirty percent. Less than its original price of two thousand two hundred forty five dollars. They also massively increased their marketing spending in an attempt to boost sales.

The lower gross profit per byte, combined with higher marketing spending, led them to post more than 300 million dollars of net losses in both the second and third quarter of 2021, and it looks like the fourth quarter will probably be even worse. A few days ago, cnbc obtained an internal peloton presentation dated january 10th. That said that the company plans to suspend production of its bikes and treadmills for more than a month in october, they forecasted demand for their products and seed production plans. Accordingly, unfortunately, they grossly overestimated.

This demand, which started to deteriorate over the next few months, remember this collapse in demand is happening despite the fact that they cut their prices by more than 30 percent, and things are probably going to get even worse. Currently, the us and much of europe is facing a great labor shortage, especially for blue-collar workers. When you order a peloton from their website, they send a van to your home to deliver it to you. Historically, the delivery has come at no extra expense.

Now the company is facing inflationary pressures due to supply chain issues and labor market tightness. Starting january 31st they'll be charging customers an extra 250 to deliver the bike and 350 to deliver the treadmill. This is effectively a 15 price increase. Remember it was just a few months ago that they cut the prices of their bike by 400, and even this couldn't stimulate demand now they're effectively reversing most of that price cut, even though they raised the delivery fee by 250 dollars.

The list price shown on their website is still 1 495 increasing the delivery fee instead of the list price is generally a marketing gimmick designed to obfuscate the fact that they're raising prices, but it's highly doubtful that these types of tricks will do anything to save the Company, their bikes and treadmills are piling up in warehouses with consumers unwilling to buy them even with free delivery. How many of them do, you think, will be sold once consumers have to pay an extra 250 on top they made the decision to halt production without even taking into account the effect of the new delivery fee. With this fee, it's only going to be even worse. You might think it's reasonable for peloton to raise their prices, given the massive inflationary environment we're in right now, inflation typically happens when there's a shortage of goods demand outstrips supply at a given price, so producers have to raise prices to bring the market back to equilibrium.

Peloton has the opposite problem. Demand for their products is far below supply, so their inventory is piling up in warehouses. Ideally, they should be cutting prices, however, because their input and supply chain costs are going up. If they cut prices, they would start losing even more money than they already are.

Cnbc also reported that peloton hired the consulting firm mckinsey to review its cost structure. This likely means that they'll be laying off employees and possibly closing down some of their physical retail locations. Shortly after the negative media reports, ceo john foley put out a statement denying that they'll completely halt production. However, he did admit that they'll be resetting their production levels for sustainable growth.

This basically means that they'll be massively cutting production and probably laying off hundreds of workers. They publish preliminary results for their fourth calendar quarter of 2021. They say that they expect revenue of 1.14 billion dollars, which is a seven percent increase over the prior year. This was boosted by the recently introduced price cuts.

Revenue is also up 41 as compared with the prior quarter, but this is mostly the result of seasonality. The fourth quarter is typically stronger because it includes the holiday season. Perhaps the most concerning thing about their update is that they expect their net loss to explode to 450 million dollars. As of september 31st 2021.

They had about 900 million dollars of cash in marketable securities at the current run rate. They could burn through this within the next few months, given how the market has turned against the money losing pandemic beneficiaries, it will be very difficult for them to raise money to support their cash burn with the stock price down 85 percent from the highs issuing new Shares would be extremely dilutive, but they may not have any other choice. What we're witnessing with peloton is part of a broader popping of the disruptive technology bubble. Zoom is down 70 from its high docusign down 60 and zillow is down 70 percent.

The crash has expanded outside the us too, with southeast asian ecommerce giant sia, also losing more than half of its value. In just the past few months. The high growth and, in many cases, money-losing bubble stocks that did so well in 2020, are finally crashing down to earth. This is perhaps the greatest reversal of fortunes that we've seen since the bursting of the dot-com bubble.

Alright, guys that wraps it up for this video. What do you think about peloton? Do you think they'll be able to make a turnaround? Let us know in the comments section below as always. Thank you so much for watching and we'll see you in the next one wall, street millennial, signing out.