Private equity is circling the pandemic darling, which hasn’t figured out how to make money.
Peloton used to make so much money. Back at the end of 2020, the company made more than $1 billion in a single quarter just from selling its fitness equipment and subscriptions. Since then, pandemic stimulus checks have come and gone, inflation has made everything more expensive and smaller, and Peloton has gone through one misfortune after another, dropping two CEOs, issuing recalls, and even becoming directly associated with the death of a strangely beloved Sex and the City character. Shares of the company’s stock are down 97 percent, and management is in desperate cost-cutting mode. Now, CNBC reports, private-equity companies are reportedly swarming around the company — generally not a great sign for future stability.
Despite this dim state of affairs, Peloton still has 6.4 million users — with about half of those people paying money, up to $44 per month, to use the service. These are people who log on to ride, run, do yoga, and sweat with big personalities of the fitness world, charismatic and beautiful people who will nudge you to work out a bit harder than you wanted to. For these millions of Peloton fans, the company’s balance sheet is probably of much less interest than getting a good and predictable workout with someone who is, perhaps, a little more engaging than the trainer at the closest Crunch. But Peloton’s problems have gotten severe enough that it may be forced to do something it has never done before: cull its roster of 59 fitness instructors, many of whom have become stars in their own right. Is it likely? Maybe!
Peloton is, in many ways, closer to a Hollywood talent studio than a gym with stars like Cody Rigsby competing on Dancing With the Stars and Ally Love hosting her own show on Netflix. These are people who appear in Adidas ads and sell expensive Lycra clothing, so you may know their faces, even without actually paying for Peloton. In the year or so that I used the iPad-on-a-bike, around 2021, I watched instructors talk about overcoming depression, their divorce, going clubbing, and how listening to Depeche Mode changed their life. All fine stuff. There’s nothing wrong with that. In fact, this is exactly the sort of content that has kept people coming back to Peloton — and paying the monthly membership fee. Or, as Anne Helen Petersen wrote a few years ago in her examination of the parasocial relationships between instructors and subscribers, “Without them, there is no Peloton.”
Of course, private-equity bankers may have a less romantic perspective. The company has already announced it’s laying off 400 employees this year, after laying off 4,500 in 2022, when the prior CEO quit. Some of these star instructors have been paid $500,000 a year from Peloton, according to Bloomberg (that is, of course, before their promotional side gigs). Peloton clearly has worked to avoid laying off instructors in the past — but it faces a diminishing array of choices for cutting costs now, since it has already started selling off expensive real estate and brought its workforce down to 2019 levels. Whether the company makes deep cuts or some private-equity banker does it, there’s not really a scenario in which it doesn’t happen (barring another pandemic-driven home-exercise boom, I guess). If it’s true that the talent makes the product, the Peloton’s C-suite might be left trying to figure out who it can cut without causing an exodus of subscribers.
Some Peloton users on Reddit, aware of the bleak situation, are already starting to game out which instructors might get the ax. Because there are no publicly available stats on which instructors are the most popular, or what metrics Peloton actually uses to measure an instructor’s worth, it’s all a matter of speculation. These discussions tend to be more sympathetic to the talent than to Peloton itself. “The instructors are the greatest asset. If they start to cut them the game is over. People are loyal to instructors not the company,” one redditor wrote.
Peloton didn’t get back to me with a request for comment, but the thing to know about Peloton in 2024 is that just because it doesn’t make a profit doesn’t mean it’s not valuable. This is especially true for private-equity bankers, whose job is to figure out how a company should make money. And clearly there is money to make in exercise since Equinox is now charging $40,000 a year for a special membership promising to help you live longer. It’s entirely possible some private-equity banker could figure out how to cut costs down even further, eke out a profit, and call it a day. It will be far more difficult, though, to salvage Peloton’s brand without the stars that kept people coming back.
