Peloton's "Moat"

The rise and fall of Peloton, from pandemic-era success story to its stock hitting a record low

Peloton’s CEO Barry McCarthy is out after two years as the stock hit a record low. The fitness brand has grappled with mass layoffs, product recalls, and falling demand.

InsiderAvery Hartmans

Peloton announced that its CEO, Barry McCarthy, will step down after two years and that the company will lay off another 400 workers. As of this writing, the stock sits at $3.45 per share, significantly lower than the height of the pandemic, when it pushed $171 per share.

Leadership has made several mistakes since 2019, which I do not need to revisit. However, as a Peloton member since 2017, I want the company to succeed. I'm "locked in" because the equipment is expensive, and the downside of being locked into a particular piece of hardware is that the device becomes useless if the company goes away. Peloton's success was not guaranteed in 2017, but it created a product millions of users love.

However, that love has not resulted in success for the company's bottom line. Previous CEO John Foley failed to steer the company through the pandemic, but at a minimum, I understand his decisions. His mistake was failing to understand what his products gave users when they were stuck inside their homes and how that would change once people left their homes again.

McCarthy's decisions as CEO confused me during his tenure, and I feel he never understood what made Peloton special, or what I call "Peloton's Moat." Peloton has two moats: the hardware and the instructors, but I wanted to write about the hardware in this post. Peloton should use its product line to get users into the Peloton ecosystem and then allow the content to upsell and keep them in the ecosystem.

Let's state the obvious. Their product line is too expensive, and I say this as an owner of the original bike. There is nothing wrong with having products at this price point, but only a subset of people will ever purchase at these prices, and Peloton has already sold to most people willing to pay. Successful companies like Apple are a better example of what to do. Many people will buy the latest version of the most expensive iPhone, but Apple sells products at lower prices to reach the mass market. $3,000 for your low-end treadmill is too high to get new users into your ecosystem.

This is important because McCarthy seems to believe content is Peloton's moat, so he was focused on the app subscription model, putting the bike in hotels, and equipment rentals. Content, especially from instructors, is incredibly valuable to Peloton. Many instructors have done an incredible job building their own followings, and Peloton was smart to foster this. However, prioritizing content and subscriptions over products is backward in this case. People do not join Peloton because they saw Cody Rigsby on Dancing with the Stars (DWTS). They watch DWTS because they take Rigsby's class and want to support him.

Even with content, Peloton is too expensive. First, $44 is unreasonable for the top tier (Yes, I still pay it, however). You'll hear Peloton enthusiasts state that this is cheaper than a gym membership and is worth it because you also save travel time since your gym is now at home. I used this logic myself in 2017 when I purchased the bike. But, similar to my argument above, users who think this way are already in your ecosystem. Potential new users may be back at gyms, and adding "another gym membership" is not a good value. Some current users may also use their products less, and the higher the monthly price, the easier it is to cut it.

As a personal example, I started long-distance running in 2023 and ran my first marathon earlier this year. I still use my Peloton bike, but more to compliment my training. In other words, how I use the bike in 2024 is different than in 2017, but the subscription price is still priced like it is an alternative to the gym, and they need to move away from that model if they want to appeal to more people.

Even the app-only subscriptions are expensive compared to alternatives like Apple Fitness+. If Peloton wants to grow its user base, it needs to offer a range of price points in its product line that are near or below those of its competitors. This is not a "race to the bottom." Peloton doesn't need to be the cheapest, but its prices are so much higher than its competitors that many people don't even consider them.