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The Horror, The Horror of the Peloton Not-Even-Plateau
This is ostensibly a post about Peloton, but it’s actually about irrational growth expectations. So even if you don’t give two shits about the bike that goes nowhere, it might be of interest.
When I was in college, there were two ellipticals at the gym. They were always filled with girls from the sororities. We called them the sorority machines. I used to love those dumb things. Several years later, when I lived in Eugene, Oregon, I went to the YMCA, which, like so many YMCAs, is overflowing with life and kids and old men with sweatbands playing racketball. I love a YMCA, and at this one, I got addicted to this fantastic strength class. I went religiously.
In the late 2000s, when I was living in Austin, I started going to a hot yoga studio with a deeply discounted student rate for an unlimited pass. It was great. My exercise clothes sure stunk. I did that for a few years, then I moved to Vermont, and the nearest yoga studio was a 40 minute drive away, so I started running outside a lot. I did one of those Tough Mudders obstacle courses with a group of teachers and students. It was hard and dumb and fun.
In New York, I started distance running — there are few better ways to get to know the quirks of a city than figuring out 15 mile routes through them. In Montana, I started trail running in the foothills, because it’s the best way to run in Missoula. I had YakTraks for when it got cold and icy, but I was never hard core enough to really love winter running.
So a few months before the pandemic hit, we saved up some money and bought a Peloton, and a few months after getting the Peloton, I got really into Power Zone training on the bike. I’m still doing that training, but now it’s intercut with a lot of Peloton strength work. In a few weeks, I’ll start training for this year’s Ragnar Relay, which will mean less time on the indoor bike and more time outside.
I regale you with this progression of the last twenty years of my exercising life not to brag — I am not remarkable at any of these things! — but to underline something that a lot of people will tell you about their exercise past. It changes. A lot. Sometimes it changes because of what’s available. Sometimes it changes because of what you and your body crave or need. Sometimes you change because you’re just kinda bored, or because a beloved teacher leaves, or a gym changes ownership, or your knees can’t take it anymore. Sometimes you’re more into being outside, or you can only grab a few minutes of exercise during your baby’s nap, or don’t have space for indoor activity, or don’t feel safe going outside at night.
Our movement needs and wants — like our diets, our hobbies, our habits — change. But just because some people’s needs change does not mean that there is no need at all. Somehow, even though I personally stopped going to yoga every day, there are still yoga studios. When I take a break from running, there are still companies whose primary focus is running apparel and footwear. People still use elliptical machines, and go to gyms, and take Zumba classes and pilates and kickboxing, and go to Crossfit boxes and rock climbing gyms and take water aerobics, even though those activities are no longer THE NEW THING. And people still use their Pelotons, even if they’re buying them at a slower clip than before.
Like, millions of people! Who, in addition to paying for an expensive bike or tread, also pay $39.99 a month to keep using that device! Peloton’s latest stats: 2.5 million people own a tread or bike and pay the monthly subscription fee — and a total of 6.2 million people use the app (which includes digital-only subscribers, who pay $12.99 a month). The churn rate is a pretty stunning one percent. (Here’s a pretty thorough look at the stats; all still trending up, just not trending up fast enough).
But the last few months have evidenced that we do not have adequate vocabulary, at least within our current capitalist framework, to talk about a trajectory like Peloton’s. A company can only be KILLING IT or TOTALLY FUCKED, there is no in-between, and no gradation — at least in most conversations — to talk about the different growth models for tech companies like Google and Facebook (whose business model rests on billions of people effectively making “invisible,” largely friction-less product for them in the form of personal data) versus tech-enabled companies like Peloton (or Netflix, or WeWork) that rely much heavier on actual products (a slick bike, an expensive television show, an office space). (Here’s a helpful breakdown of those differences).
Cue headlines like this one, filed under “SPINNING OUT OF CONTROL” at Quartz:
And this one from Gizmodo:
And the narrative of its “Rise and Fall” from Slate:
These headlines align with requests I’ve fielded from various journalists and podcasts, generally asking “Is Peloton over???” Often, these requests cite the fact that there are Pelotons for sale on Facebook Marketplace as proof of concept. But anyone currently selling a Peloton never really wanted a Peloton. They wanted a distraction, or they wanted to convince themselves they could change their pandemic personality if they had one. They wanted to go to a Peloton class, maybe two, but that wasn’t possible, so now, especially in a place like New York — they want their space back. This is not a Peloton failure, per se. This is human relation to exercise and consumption.
And yet, the narrative persists: Peloton is over. We are still talking about a company with 6.2 million users and a 1% churn rate. Back in the 2010s, I bet there would’ve been a similar conversation about yoga (specifically, the yoga in United States and Canada, that’s studio-centric, hot or room temp, and alienated in almost all cases from its traditional, non-capitalistic roots). The days when people fought for reserved spots seemed to be in decline; famous teachers were besieged by scandal; well before the New York Times article, it was clear that the entire teacher-training model (a massive revenue source for most studios) was a thinly-veiled MLM at best.
YOGA WAS OVER. But yoga was not over, yoga has not been over for 5000 years, yoga will not be over anytime soon. Between 2012 and 2016, the number of yoga practitioners in the US rose from 20.4 million to 36 million. Their spending also went up — from $10 billion to $16 billion. The difference is that US yoga was not a single company on the stock market. There were successful franchise brands, like CorePower, but none of them were publicly-traded.
US-studio-based yoga might no longer have been as fashionable, as visible, or growing at the rate as it had before. But whatever problems an individual studio might have had in turning a profit, they were not exacerbated by headlines about the market’s certainty of its imminent demise simply because they were no longer growing exponentially.
Peloton is also not over — but it does have to contend with the exponential growth imperatives of a tech company that IPO’d weeks before the pandemic. And over the last few months, the company has ceased to grow the way did when millions of people had no other options for exercise and several years worth of organic demand consolidated into a few months’ time. And this is bad, because that concentrated demand created a perception that Peloton was something it was not.
If you think about it, Peloton is a really weird company. You have an expensive initial buy-in that differentiates it from, say, Netflix. But unlike, say, an Apple iPhone, it doesn’t integrate itself so fully into everyday life as to seem indispensable. It has a lot of data about its users but unlike Facebook or Google, it is not, at least at this point, selling that data at a profit. It is addictive and inspires strong brand loyalty, but there is a limited Venn diagram of people who have the money to buy a Peloton, the space to store it, and, most importantly of all, the desire to exercise enough to make it seem worthwhile, or at all.
Netflix gets people to pay for something they like. Peloton relies on people paying for something they might want to do, but that’s different than liking. Its talent can continue to ask for more money to produce the same amount of content. Like Netflix, it has to constantly produce new content while also paying licensing fees (in Peloton’s case, for the music; in Netflix’s, the stuff it acquires) on old content. Unlike Apple, which compels people to buy multiple expensive items in its extended universe, expanding Peloton-branded items (like, say, buying a tread after buying the bike) requires significant space. And then it has to grapple with all of the natural exercise attrition and progression I described above.
But the stock market doesn’t fully account for these things. It’s such a blunt, bad instrument for thinking about the health and future of a company. It’s like a toddler that you point in a direction and it keeps going until it falls. So when it came to Peloton, it surged like no one would ever be able to exercise in any other way ever again. The price rose from $23.01 on March 20th, 2020 to a high of $162 at the end of December 2020.
You can see that attitude on display in this write-up of why the stock began to soar in August 2020:
Peloton now has a market capitalization of $24.8 billion, despite generating negative free cash flow and net income on a trailing 12-month basis. But the interactive fitness provider is growing rapidly and seeing significant progress in improving its profit margin.
Eventually, this growth stock will have to rest before going any higher, but the analyst believes Peloton's current momentum justifies a higher stock price based on the sheer momentum in order volume right now. Last quarter, Peloton doubled its production output yet still had a backlog entering the fiscal fourth quarter.
I mean, of course it’s growing rapidly! Of course there’s sheer momentum in order volume, it’s six months into the pandemic! I just don’t understand how you can look at that demand and think YEP, THAT’S SUSTAINABLE, EXPONENTIAL HOCKEY STICK GROWTH FROM HERE TO ETERNITY, PELOTON FOR PRESIDENT 2024, PUT A PELOTON ON THE MOON!
I also find “invest because there’s backlog” about as sensical as all of those Instagram ads that are like “buy the frying pan that’s gone out of stock twelve times!” Yes, that means there’s demand. It also means that there’s something wrong with the supply chain, and you’re either to piss people off as they wait or spend too much money correcting it, and then have too much supply when you’re no longer selling out.
Which, you know, is pretty much what happened. Peloton grew desperate to meet inflated demand of its customers, and made business decisions — many of them expensive and cost inefficient — to meet those demands. It branched out into its own apparel line; it began pushing more expensive bikes and treads. They over-invested on infrastructure, on staff, and on general expansion, while also making stupid, reckless mistakes like refusing to recall their Tread for months after a malfunction lead to dozens of injuries and the death of a child.
And as Vox’s Emily Stewart smartly points out, the company also started buying their own press. As Peloton’s CEO John Foley put it in a company all-hands last week, the desire to respond to the demand left the company “a little undisciplined” — and “every decision we were in for probably 18 months, every meeting we were in, we said, it doesn't matter. Just get the capacity we had to go from here to here, you know, a six-, seven-, eight-, ten-X increase in capacity across a lot of our manufacturing and supply-chain channels.”
The stock market failed to understand the growth for what it was, in other words, but so, too, did company leadership. Ranjan Roy argues that this sort of posture towards growth doesn’t just screw your margins — it screws your company culture. In Roy’s words:
A 75% drop in a stock price seems pretty bad, but the stock is still trading at 3.5x revenue as of writing. That’s what makes this kind of stock price journey so intriguing. Nothing really changed. If you removed the roller-coaster the company has done…..fine. It’s quadrupled its pre-pandemic revenue. The stock is trading at a reasonable level. It has a bunch of assets in place that have potential.
But from a company culture standpoint, I’m sure there are plenty of employees with options that are underwater. I have to imagine the jarring impact of hiring bursts and freezes will take a toll. The confidence of the average employee in the company might not be great, but this is also a brand I imagine employees love to work for. Can they culturally come back from this?
Roy ends his piece by emphasizing that the company really did offer something pretty unique and remarkable when it premiered in 2017 — and still offers a very good workout. But can it endure the “somewhat artificial stock market roller-coaster and still be Peloton five years from now?” It’s a fair question. A lot of people’s understanding of Peloton, its meaning, and its future has been fully alienated from the thing it actually produces, which is a pretty preposterously good workout that’s become a steady and often meaningful part of millions of people’s lives.
There’s a real loss there, I think. But it also helps explain the rot at the core of so many companies. If a product significantly changes the lives of its users, but only hundreds of thousands of them, not millions — it’s not legible as success. If a product doesn’t lean on the abject exploitation of those who make it, or the natural world whose resources compose it, thus lowering its profit margins — that’s not legible either. Not to the stock market, not to business press, and not, by extension, to the millions of people who passively absorb and understand information about the world around us.
Legible success is “blitzscaling,” with exponential hockey stick growth to the moon. Success is billions, not millions. Success feeds on what Rebecca Solnit calls “the tyranny of the quantifiable.” It does not rest; it is blinkered in its focus; it is ruthless because anything less is failure. None of this sounds great — not for the consumer, not for the natural world, not for our personal development or, really, for anyone involved save those at the very top. But it also sounds deeply, enduringly American.
I’ve previously written about how Power Zone training on the Peloton requires spending extended time with various instructors. And when you hear the same message enough times, in enough forms, it begins to challenge even the most firmly-held of priors. These past months, I’ve been listening to my favorite instructors tell me that fluctuations in your FTP — a measure of your Functional Threshold Power — are part of the rhythms of fitness. You get stronger, you take some rest and maybe concentrate on a different activity, your FTP goes down, you start training again. When it comes to building your FTP, there’s no such thing as a straight, upward trending line. Sustainable fitness — and achieving your goals, and not injuring yourself— is ultimately about being okay with that.
Sounds reasonable, right? But there’s a reason my PZ Peloton coaches have to keep emphasizing the idea, underlining it seemingly every session, looking us (seemingly) straight in the eye and saying YOU ARE NOT THE NUMBER ON YOUR FTP. No one, least of all the analysts who write the briefs and program the algorithms that determine the fate of the company, or any company, quite knows how to believe it.
End Note: I’m currently sketching out an outline for a potential podcast on work. If you have a workplace conundrum you’d like addressed, I’d love to hear about it. The form is quick and very open-ended — but let’s figure out the sort of content that you’d like to see covered. (I’ve already collected a ton of great, big-picture questions, and would love more of those, but also welcome some of your seemingly straightforward, logistical, or bizarre conundrums, too.)