Peloton's Ad Controversy Has Been Overshadowed by Declining Stock Prices, Valuation Scrutiny

Peloton ad
(Peloton - The Gift That Gives Back / YouTube.) Peloton's new holiday advertisement, published to YouTube on Nov. 21, has spawned hundreds of articles and analyses as well as thousands of scrutinizing social media posts calling it tone deaf, cringeworthy, dystopian and sexist.

On paper, it may be unclear why a new holiday advertisement by New York-based Peloton caused such controversy when it was widely shared on social media last week.

The ad, published to YouTube on Nov. 21, depicts a husband surprising his wife with a $2,245 Peloton bike on Christmas morning. A 30-second narrative ensues, to the backdrop of Tal Bachman's 1999 song "She's So High," during which the wife appears to reluctantly appreciate the bike and its virtual workout content.

The ad went viral after a little more than a week of public availability, spawning hundreds of articles and analyses as well as thousands of scrutinizing social media posts calling it tone deaf, cringeworthy, dystopian and sexist.

The meaning of the word "controversy" has become so ambiguous that, in late 2019, it seems necessary to attempt to measure its scope in any given scenario.

In Peloton's case, its holiday ad was followed not only by social media backlash, but also by a 9 percent drop in stock price (NASDAQ: PTON) on Dec. 3. In total, the company experienced a 15 percent decrease over a three-day period, which is approximately equivalent to a market value loss of $1.5 billion.

Peloton has asserted that the stock fluctuation was not related to its ad.

“We constantly hear from our members how their lives have been meaningfully and positively impacted after purchasing or being gifted a Peloton Bike or Tread, often in ways that surprise them,” the company said in a Dec. 4 statement. “Our holiday spot was created to celebrate that fitness and wellness journey. While we’re disappointed in how some have misinterpreted this commercial, we are encouraged by—and grateful for—the outpouring of support we’ve received from those who understand what we were trying to communicate.”

This statement has also received much scrutiny, including a Dec. 5 column by Inc. titled “Peloton's Latest Ad Was Bad, But Its Response to the Criticism Was Far Worse.”

“When there's a disconnect between your message and your audience, it may not be your fault, but it's always your problem,” Inc. columnist Jason Aten wrote.

In business, a controversy can give way to a full-fledged reputation crisis when a company experiences economic damage from angry or disappointed stakeholders, according to risk management expert Nir Kossovsky, CEO of Pittsburgh-based firm Steel City Re, who spoke with Club Industry in September.

"[A reputation crisis] doesn't require a media element, although certainly many stakeholders may realize they should be angry or disappointed by learning about something through the media—and whether or not it is true is a separate issue," Kossovsky told Club Industry. "The critical element is that stakeholders who have certain expectations, whatever they might be, find themselves not having that experience as expected and become disappointed. And the degree to which they are disappointed and the degree to which it is an emotionally intense response translates to the degree of economic damage.”

Peloton began publicly trading on the New York Stock Exchange on Sept. 26. Its shares began trading around $27 per share, two dollars below its offering price, before hitting a low mark of $21.08 per share on Oct. 23. Peloton's trading price reached a high mark of $36.84 per share on Dec. 2. On Dec. 11, its closing price was $32.03 per share.

On Dec. 10, popular investment newsletter Citron Research criticized Peloton’s $8 billion valuation, calling it disconnected from reality, before predicting that the company’s stock price will fall to $5 per share in 2020. Citron also accused CEO John Foley of displaying excessive hubris and highlighted the company’s lack of profitability. (Peloton recently reported $245.7 million in annual net losses.)

"By no means is Citron saying that Peloton’s revenue will decline by 70 percent or 80 percent, but even a small decrease in growth will result in a large decrease in share price,” Citron's report states. "If Peloton ends up being a $3 stock, that would make this a $1 billion spin-bike company. Nothing short of a huge success."

Peloton was founded in 2012 and, at the time of its initial public offering (IPO), claimed 1.4 million members of its digital platform. Peloton’s digital content subscription costs $39 per month or $468 per year, in addition to the cost of a bike, and all bike packages require one subscription per household bike.

As of Dec. 11, Peloton’s holiday ad has been viewed 8.1 million times, with 22,000 downvotes and 18,000 upvotes. The ability to publicly comment on the ad has been disabled.

What is your opinion on Peloton’s holiday ad and current financial standing? Share your thoughts with Club Industry on FacebookTwitter or LinkedIn.

Read more on:

Suggested Articles:

The COVID-19 pandemic has affected many fitness industry events in 2020; the Club Industry Show is no exception.

After months of being closed, health club operators need to attract people back through their doors from these two groups first.

Club Industry is beginning a series of articles and videos that will look at the lack of diversity, equity and inclusion in the fitness industry.