Peloton’s rocket ship-like growth during the pandemic is not without downside, as the connected equipment maker learned in a painful lesson on Wednesday.
Peloton (PTON) CEO John Foley said Wednesday that the connected fitness company’s voluntary decision to recall its Tread+ and Tread treadmills after one child’s death and other reports of injuries was the “right thing to do” for the company’s members and their families.
The Consumer Product Safety Commission (CPSC) announced that Peloton was recalling the $4,295 Tread+ and the $2,495 tread, noting that people who bought either piece of equipment should stop using it immediately and contact the company for a full refund.
The company’s stock was down more than 14% to $84.00 in midday trading Wednesday. Peloton shares were also the top-trending ticker on the Yahoo Finance platform in early afternoon trading.
“We view this as another sign that Peloton’s voice and platform grew faster than its business, and it is still working to grow into its fame,” BMO Capital Markets analyst Simeon Siegel wrote in a research note soon after the recall.
Continued Siegel, “With a still ~$30 billion market cap vs. consensus-expected ~$4.1 billion of FY21 revenues, Peloton’s market value looms much larger than its expected results and we believe one can argue more of Peloton’s market value has been created by its marketing department than by its engineers or instructors. Recommend the bike, worried about shares.”
Siegel maintained his Underperform rating on Peloton with a $45.00 price target.
Inside the recall
In its release, the CPSC noted that in addition to a child’s death there were 70 “incidents” related to the treadmill. The agency previously issued a stark warning about the Tread+ on April 17, noting the death and “multiple incidents of small children and a pet” being injured beneath the machines. In a tweet warning users to “stop using the Tread+,” the CSPC posted a disturbing video of a child being sucked under the machine while playing with a ball.
That warning prompted a fiery response from Foley, who said the company had “no intention” of recalling the Tread+. In a statement on Wednesday, Foley acknowledged that response was a “mistake.”
“We should have engaged more productively with them from the outset. For that, I apologize. Today’s announcement reflects our recognition that, by working closely with the CPSC, we can increase safety awareness for our Members,” Foley said in a prepared statement. “We believe strongly in the future of at-home connected fitness and are committed to work with the CPSC to set new industry safety standards for treadmills. We have a desire and a responsibility to be an industry leader in product safety.”
The CSPC said today that Peloton is currently working on hardware modifications for the Tread+. The cheaper Tread was part of a limited, invitation-only release from November 2020 to this past March, and the CSPC said Peloton is working on a repair to be issued in the coming weeks.
Peloton itself raised concerns about the Tread+ in March, when Foley posted a letter on the company’s website noting that fatal accident involving a child and the company’s treadmill.
“While we are aware of only a small handful of incidents involving the Tread+ where children have been hurt, each one is devastating to all of us at Peloton, and our hearts go out to the families involved,” he wrote.
While Peloton doesn’t disclose its sales figures for treadmills, they are seen as a key ingredient of diversifying the revenue base beyond bikes and widening the company’s total addressable market.
Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.
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