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Pedaling Through Time: Peloton’s Pitch Deck Deep Dive

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The last four years have been a roller coaster for investors and CEOs.

Dealing with a global pandemic, a stock market crash, and the most aggressive interest rate hike campaign seen in the last forty years has been challenging.

Despite this, financial markets continue to set new records, recovering quickly from the COVID crash in February 2020.

However, as most stocks reach new highs, some companies have turned out to be one-hit (COVID) wonders.

This week, we look at Peloton, a company that thrived during the pandemic but faced a spiraling downfall.

Peloton saw its popularity, share price, and revenue explode as consumers were forced inside. But this rise was a setup for an even more dramatic crash.

Peloton Phase 1: Promising Product & Untapped Market

Peloton’s first pitch deck came in 2011, with the picture above being the very first slide any investor would have seen.

The founders of the company believed the current fitness industry was missing something.

Sure, going to a gym or fitness class was great - you got professional instruction from a trained instructor, top of the line equipment, and the chance to work out with like minded people.

But fitness classes also had its drawbacks.

Largely, the fact that one would have to leave their home and drive 20 minutes, all to pay an inflated fee to do a workout that could mostly be done at home.

Peloton promised to deliver the excitement, loud music, sensational personalities, and feeling of togetherness of a high end fitness class all from the comfort of a customer's own home.

The slide below shows the incredibly simple but promising platform Peloton wanted to create on a national scale.

The original concept and platform was great, however, an idea is only as valuable as the market it serves.

Perhaps one of the most important slides in their entire first deck is shown below. Outlining the market (that was largely untapped in 2011) was set to grow to $10.5 billion by 2015.

This large and growing market was potentially what tied everything together for investors and was what allowed the company to successfully raise over $900 million in 9 different financing rounds as a private startup.

The icing on the cake came in the final slides (shown below), showing the value chain and underlying mechanics of how the software and hardware of Peloton would blend together.

As well as the current prototype and testing environment showing promising results and scalability.

Hindsight is always 20/20 and it's easy now to criticize the business model and concept of Peloton back when they were still developing the prototypes and technology.

However, the original idea and product of Peloton was absolutely revolutionary.

From 2011 onward, time would prove that consumers were in fact looking for a fun, convenient, and home-based way to get their exercise in, without having to pay expensive memberships or drive 20 minutes to the most popular spin class studio.

The management team proved that a simple slide deck which showed a platform, market opportunity, and proof of concept was everything an entrepreneur would need to raise some serious sums of money.

The problems for Peloton wouldn’t come until much later. For now, we’ll give credit where credit is due.

Peloton’s management team, although criticized by many on future decisions, were incredibly successful at pitching their idea and convincing investors their dream was worth some investment capital.

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Peloton Phase 2: Growth at all Costs

Peloton's initial pitch deck painted the compelling picture of a market untapped, a concept that was simple to understand, and the hardware/software that could scale.

Armed with the vision to combine the best spin bike equipment with the community aspect of working out with friends and the guidance of an instructor, Peloton put itself in a great position to grow over the coming decade.

And that’s exactly what they did.

From 2011 to 2018 Peloton performed a total of 9 fundraising rounds, raising over $900 million, all with the lofty goal of one day becoming a publicly traded company.

Their next pitch deck came nearly 10 years after the 2011 deck, when on September 26, 2019 Peloton became a publicly traded company under the ticker PTON, and released their IPO pitch deck for all investors to see.

Same Formula, Bigger Audience

Peloton’s IPO slide deck, although much more polished in presentation, still had the same formula that proved to be so successful back in 2011.

Below is the first slide an investor would have seen.

And again, Peloton chose to focus on how their business was combining the best pieces of the fitness industry into a single compact product that would fit into someone's home.

This slide was followed up by an equally strong visual of the impressive financial growth and subscriber base the company had successfully built over the last 8 years (see slide below). More specifically, Peloton boasted 563,000 active subscribers - marking 103% YoY growth.

A 94% customer retention rate. $1 billion in topline revenue - showing 110% YoY growth.

And each subscriber completing over 11 workouts through the Peloton system each month, leading to a remarkably low churn rate of only 0.90%.

Peloton did a good job showing the company they had built to date. However what investors really wanted to know is what the future would look like.

The next slide showed the 7 key factors that management believed would take their company to the next level.

Again, what’s interesting to note is the striking similarity of their IPO pitch deck to their original deck in 2011.

The emphasis on market opportunity, broad appeal, and superior product were still key components of their pitch deck nearly 10 years later.

From its inception to its IPO, Peloton focused on building a direct-to-consumer supply chain, enhancing their fitness class offerings, launching the Peloton Treadmill, and establishing a fully in-house customer support team to handle hardware and technological issues.

At first glance, everything seemed great: a loyal customer base, a growing market, a huge subscriber base, and almost no real competitors.

However, when something appears too good to be true, it often is. After showcasing their most popular spin instructors, Peloton revealed its financial breakdown.

From 2011 to 2019, Peloton failed to make a profit.

Their presentations highlighted top-line growth and new subscriber numbers, diverting attention from their financial struggles.

The reality was that profitability was not a priority for Peloton’s management. Instead, they spent enormous sums on marketing, building their supply chain, and creating content production hubs.

As shown in the slide below, Peloton projected an 84% year-over-year growth in subscribers for 2020, with total revenue expected to reach $1.5 billion.

Despite this, the company anticipated a loss of at least $150 million for the year.

Perfect Timing

Peloton choosing to IPO in September of 2019 would prove to be a game changing catalyst for the company, as only months later covid-19 forced entire countries into quarantine.

Quickly, the demand for Peloton’s at home fitness equipment skyrocketed as consumers looked for new ways to stay active and occupied while being stuck inside.

Financially, Peloton saw revenue growth surge 172% in Q4 of 2020 - which subsequently led to their share price rising over 440% as investors cheered on record breaking growth numbers.

This level of demand however, would soon cause new problems for Peloton.

The global pandemic created mass supply chain disruptions, leading to longer lead times and customers complaining about the length of time to get their Peloton bike delivered.

Peloton responded by investing over $100 million into their manufacturing facilities, as well as a $400 million investment to build a brand new factory in Ohio.

All this was on top of the company doubling its workforce to over 8,700 employees (with most of these new staff members focused on sales) and more and more of the firm's cash flow going towards advertising and marketing.

What Goes Up, Must Come Down

One of the final slides of Peloton’s IPO pitch deck (see above) summarized what management would focus on moving forward.

And because of the global pandemic, management did indeed, not only meet these goals, but surpass them faster than anyone thought possible.

Though, as time would go on, looking back this slide also showed the cracks beginning to form within Peloton’s business model.

In other words, the success Peloton was experiencing would soon prove to be their downfall.

Triple digit revenue growth can only last so long, and eventually, a business must show they are capable of growing their business in a profitable way.

As global economies started to reopen, so to did traditional fitness facilities. This in turn, led to slowing demand for Peloton’s fitness bikes.

Yet despite this drastic change in consumers' needs, management failed to adjust or pivot in the face of slowing growth. Instead of recalculating, management decided to plow ahead with their large scale investments and double down on their advertising model.

Unfortunately, the good times can only last so long. Soon, investors began to sniff out the ballooning costs, slowing growth, and lack of profits.

On January 15th of 2021 Peloton’s share price reached a high of $171.17, and exactly one year later, Peloton saw their share price drop by 83% (and has since fallen a total of 97% - see chart below).

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Peloton Phase 3: Blood in The Waters

Shortly after Peloton saw their share price drop by close to 100%, Blackwells Capital - an international investment fund - published not one, but two pitch decks of their own, focusing on the gross mismanagement and abysmal performance of Peloton.

The slide below, breaks down Blackwells criticisms, focusing almost entirely on the lack of leadership and inability to properly manage the company's finances.

Blackwells presentation wasn’t all negative.

The investment firm did highlight the company's impressive ability to build an engaged customer base and potential for strong unit economics if finances were controlled (see slide below).

Though what Blackwells really wanted to emphasize was the current management team being unable to correct past mistakes and were continuing to double down on a growth strategy that didn’t reflect shareholder interests, or the current economic reality of rising interest rates.

The first slide deck Blackwells published turned out to be enough for CEO John Foley to resign.

Still, only one month later Blackwells released a new pitch deck, putting even more emphasis on the poor decision making and leadership of Foley, focusing on the new CEOs exorbitantly high pay structure.

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Peloton Phase 4: Zero Progress

Peloton was one of the most captivating stories during the global pandemic.

Growing a business from nothing to over $1 billion in revenue is a remarkable achievement.

However, in hindsight, the flaws (and potential) of Peloton’s business model were evident in their pitch decks.

The product was innovative, the market was untapped and expanding, and Peloton addressed a problem consumers didn’t know they had.

Yet, from the start, management prioritized growth above all else.

The profit margins on selling a bike were merely satisfactory.

Adding to this, the company had high compensation packages, hundred-million-dollar manufacturing facilities, and costly content creation hubs.

This approach set Peloton up for disaster when growth inevitably slowed.

Today, Peloton’s share price is $4.32, a significant drop from its peak of $171, meaning most investors have lost substantial value.

The company still struggles with profitability, showing a profit margin of -31.93%, operating cash flow of -$206 million, and a return on assets of -11.99%.

This poor performance persists despite revenue growing to almost $3 billion.

This indicates that management has not yet found a way to scale the business without excessive spending on marketing and supply chain.

Peloton’s story, as seen through their pitch decks, teaches us crucial lessons about the dangers of rapid growth without considering potential risks.

Like a child trying to run before they can walk, Peloton pursued big dreams without ensuring a solid foundation to support them.

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See you next Tuesday,

-PitchDeckGuy

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