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Capital Calls: Peloton breakaway fades on recall

2 minute read

A Peloton exercise bike is seen at the Nasdaq Market site in New York City, September 26, 2019. REUTERS/Shannon Stapleton

NEW YORK, May 5 (Reuters Breakingviews) - Concise insights on global finance.

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OVERUSE INJURY. Peloton Interactive (PTON.O) has backed away from its fight with the U.S. Consumer Product Safety Commission over treadmills following the death of one child and dozens of injuries. On Wednesday Peloton said it is recalling them and offering refunds. Chief Executive John Foley apologized. Shares tumbled almost 15%.

The company’s valuation from here hinges greatly on whether die-hard users of its bikes and virtual workouts can brush off the spill. While Cowen says the high-end Tread+ makes up only 2% of Peloton’s hardware sales by unit, Peloton has said that its new, cheaper model will be one of the biggest growth engines.

Peloton has been growing into its valuation. At roughly $22 billion including the drop on Wednesday, the company’s enterprise value is almost half what it was in January. At the same time, on an enterprise value-to-2021 estimated sales multiple of around 6 times, it is well below Uber Technologies (UBER.N). But that depends on sales more than doubling from 2020. Peloton may be able to regain users’ trust. If not, shareholders will have a mountain to climb. (By Robert Cyran)

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