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Peloton can stand to benefit from commercial fallout

Despite the 9 per cent drop in share price, the heightened attention can increase sales

Peloton went public in September in the midst of a debate about whether the company could build a sustainable business selling expensive stationary exercise bikes and pricey subscriptions to digital workout classes.. Photo: Reuters
Peloton went public in September in the midst of a debate about whether the company could build a sustainable business selling expensive stationary exercise bikes and pricey subscriptions to digital workout classes.. Photo: Reuters

Peloton Interactive has been pilloried online and punished on the stock market following the release of a holiday advertisement for its stationary exercise bike that was deemed culturally insensitive. But the backlash could be a good thing for the company in the long run.

The commercial, which features a woman documenting a year in her life with the Peloton bike her male partner gave her, struck some viewers as out of touch — suggesting the already thin “Grace from Boston” was undergoing a strenuous workout in order to lose weight for the guy. The video, released about a month ago, went viral on social media, eliciting a scathing parody by comedian Eva Victor and prompting Peloton to close comments on the official YouTube video.

As the internet buzz seemed to hit a peak earlier this week, Peloton’s stock fell 9 per cent. But some experts say the increased attention could end up boosting sales.

“They might benefit more because people are looking it up and learning more about it,” Laura Ries, president of advertising consultancy firm Ries & Ries, said. It’s still a short-term bump for a company that has historically been largely successful with marketing, with a total member base of 1.6 million people including more than 560,000 who have one of the proprietary bikes or treadmills plus a fitness subscription, according to Peloton’s most recent quarterly report. The official Peloton advertisement on the company’s YouTube channel has been seen by more than 3.6 million people.

The controversy comes at a crucial time for the New York-based company, which is new to market scrutiny after listing shares in September, in a bid to capitalise on the all-important holiday sales season and expand in new markets such as the UK and Germany. The shares had gained 27 per cent since its initial public offering before the wave of internet commentary dragged it down on Tuesday. The shares closed 5 per cent lower on Thursday.

The company is also facing increased competition in the booming at-home fitness market, especially amongst workout apps, Nike, Aaptiv and apps such as Kayla Itsines Sweat with Kayla, have all gained followings for exercise programmes available on a user’s phone.

Peloton has been punished by Wall Street for its focus on growth over profitability. The company sells a stationary bike starting at about $2,000 (Dh7,345) and a treadmill that costs about $4,000, in addition to a basic 'connected fitness' subscription plan at $39 a month for those pieces of hardware, and the separate digital apps that don’t require equipment. Its loss narrowed in the three months ended September 30, to $49.8 million.

The stock surged almost 10 per cent last Friday after the company was reportedly seeing strong demand on Black Friday. And earlier this month, Peloton lowered the price of its digital subscription app to $12.99 a month from $19.49 in conjunction with the launch of new apps for Amazon’s Fire TV and Apple Watch, a move that could entice new users. JMP Securities analysts raised their price target on the stock to $38 after the subscription reduction saying it “broadens Peloton’s reach, improves conversion and reduces purchase friction.”

Ronald Josey, a JMP analyst, said there are “a lot of good things going on” at the company and that people will continue to buy the bike and other products despite the controversy.

According to the most recent earnings report, Peloton expects its user base to grow to 680,000 or more by the end of its second quarter thanks to holiday sales and New Year’s resolutions.

Scott Galloway, a professor of marketing at the NYU Stern School of Business, said the commercial itself is tone deaf and borderline offensive. But “in this attention-driven economy, anything that gets attention is arguably a positive,” he said in an interview. “It’s bringing Peloton into the social discourse on very regular basis, which is what ads are supposed to do.” If Peloton had to do it again, Galloway said, “I’d argue they probably would.”

Updated: December 8, 2019 03:47 PM

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