by Greg Barker
Thursday, 10
February 2022
Analysis
10:31

Peloton’s stock crash is just the beginning

No company better symbolised the market bubble that we're in
by Greg Barker
It was all downhill after this ad

Amid every financial craze throughout history, from the South Sea Bubble to the 1840s Railway Mania to the more recent Dotcom Boom, there are always pointers that exhibit the utter craziness of that period. Today, in what is undoubtedly the frothiest market bubble for some time, we’ve been graced with an abundance of bizarre products that have offered us similar signals. And perhaps the strangest product of them all is the oversized iPad attached to an exercise bike (and other pieces of gym equipment) made by Peloton.

The U.S.-based manufacturer of “unique” gym equipment offers consumers a chance to experience luxury gym sessions at home. But it comes at a hefty price: its bike, for example, starts at $1,495, reaching up to $3,035 for its Bike+ model, and for full access to “classes, live streams, leaderboards, and metrics,” you must shell out an extra $39 per month. Plus, with its competitors offering virtually the same product at a cheaper price, the only reason to pay more is for the “Peloton experience”. Whatever that means.

But with the pandemic waning and consumers vowing to return to “normal,” ditching Covid-centric activities is becoming more commonplace. In turn, Peloton’s sales have hit the brakes. The company, even during its peak, failed to turn a profit. Consequently, its stock has plunged from its December high of $151.72 to just around $38 per share, forcing the company to lay off over 3,000 of its 12,000 employees and replace its CEO this week. Now, in a classic “sources familiar with the matter” scenario, rumours of retail behemoths Amazon and Nike acquiring the struggling exercise equipment-maker have saved its stock price for now.

Peloton’s plunging share price is part of a bigger selloff of “risky assets and ventures”, a cushy idiom for overpriced junk that always attracts speculative buyers. The crypto market has lost a trillion dollars in market capitalisation; SPACs (special purpose acquisition companies), which allow companies to go public without receiving almost any scrutiny, have been dumped; and company shares within the dubious ARK “Innovation ETF” have been pummelled, with most stocks down over 50% since the height of the euphoria in October last year.

Why did it end around then? Probably because many U.S economic indicators had peaked and begun to slow. Small business sentiment started to fall, while the ISM Manufacturing and Services Indices began to slow. American consumer sentiment, then already at a low, has continued its decline.

Meanwhile, in the face of rising inflation, Federal Reserve officials are signalling their willingness to up-the-ante on interest rates, tightening monetary conditions, in order to try and prevent rising consumer prices.

Slowing growth, rising interest rates, and a Federal Reserve ending its latest bout of monetary easing. What could be worse for low-quality stocks like Peloton that have been surfing the wave of speculative hype since their very inception? Since the global financial system is now more leveraged than ever, the next financial meltdown won’t end well for the broader market, let alone stocks behind companies built on outlandish products and a slick narrative. Peloton is just the beginning.

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Francis MacGabhann
Francis MacGabhann
9 months ago

In other words, it’s the inevitable morning after and everyone’s waking up with a hangover.

Chris Mochan
Chris Mochan
9 months ago

As I understand it, the Peleton bike gave a prominent character a fatal heart attack in the latest series of Sex and the City. I can only begin to wonder why anyone in the marketing department authorised that.

Philip L
Philip L
9 months ago

Ever seen ARK’s Cathie Wood interviewed? Been painfully obvious since the get-go that she was an untrustworthy, wild eyed huckster selling nothing but claptrap and hot air.
She enjoyed a whole new level of good fortune with Tesla stock (which turned self-fulfilling prophecy years ago when the market fell for Musk’s robot cars BS) and with the tech bubble generally; the producers at CNBC, who are thick as mince, turned her into this “investment guru” rather than the more obvious “ordinary person who lucked out”.
To this day they have her on and ask her questions about deep value stocks. And wonder where their audience went.

Chris D.
Chris D.
9 months ago

Got a buddy at the tennis club who bought his wife a Peloton. Later, he tells me he rides it more than she does. Why? He likes the stacked women who lead the sessions! Easy business model to copy.

But, yeah, the market feels a little toppy, and NATO wants to lean into Western crisis exhaustion with a ginned up Ukraine episode.

john zac
john zac
9 months ago

This story is emblematic of virtually everything created in the US. Virtually everything ends up being over hyped crap, including executives and politicians

Lennon Ó Náraigh
Lennon Ó Náraigh
9 months ago

Paying $39 per month to ride a “bike” in your house when you ride a real bike outside for free… was this ever going to work out in a post-lockdown world?

Ian Moore
Ian Moore
9 months ago

The indoor bike riding, training and racing scene is huge. Peloton is just garbage. There are much better products and solutions, including trainers that you can use your own bike on.

Warren T
Warren T
9 months ago

This is what happens when you “create” many trillions of dollars out of thin air.
In the words of Jim Rogers, “If you give me $5 trillion dollars, I’ll show you a good time too!”

Jon Hawksley
Jon Hawksley
9 months ago

“Since the global financial system is now more leveraged than ever” It would be interesting to know how leveraged stock holdings are. The long term value of a stock is the discounted value of its future dividends and eventual liquidation value. You can pay more and make a profit only if someone else believes that in paying even more they too can find someone who will pay yet more. That greed and desire not to miss out drives stock prices up but it is not sustainable. If banks are financing share purchases above the long term value then those loans are at risk, it would be good to know how big a problem it will be.

Warren T
Warren T
9 months ago
Reply to  Jon Hawksley

Don’t worry, the banks will get bailed out again when the bubble bursts. But the nauseatingly extravagant bonus’s to employees won’t have to be repaid.

chris sullivan
chris sullivan
9 months ago
Reply to  Jon Hawksley

YES – Unherd needs a decent economist on board because this issue effects ALL us far more than most of the articles on Unherd

Terence Fitch
Terence Fitch
9 months ago

Those appalling smug adverts. Any exercise where you’re shouted at ( many of those ‘classes’ at a gym) reminds me of a cross between the Nuremburg rallies and Winston Smith being barked at by his telescreen.