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Peloton ad costs the company and shareholders $1.6 billion

Peloton holiday commercial sparks criticism
Peloton holiday commercial sparks criticism 01:59

A winning advertisement can create a veritable halo around a brand. Then there's what happened to Peloton. 

The high-end exercise equipment maker has lost about $1.6 billion in market value following a controversial TV ad that some have bashed as sexist, classist and promoting an unhealthy body image. Although the spot originally ran in early November, Peloton shares have lost 15% since Monday, when the ad made the rounds on social media. 

Rohit Kulkarni, an analyst with equity research and trading firm MKM Partners, said the sharp drop in Peloton shares reflects "the negative sentiment toward the ad and the backlash. I don't see any other fundamental reason that it would drop as such."

Another factor that could be scuffing up Peloton is the expiration, possibly as early as next month, of the "lockup period" on the stock following its September initial public offering — that's when insiders are free to sell their shares.

"When you have a lock-up period, the last thing you want is any speed bump to further inflame that sell-off — it's a bad ingredient," said Wedbush Securities analyst Dan Ives.

Other analysts also ascribed the dip to an unwarranted rise in the company's stock price, particularly around Black Friday. After initially falling after the IPO, beginning in late October Peloton's stock price shot up 70%, including nearly 20% in the Thanksgiving week alone. Now it's returning to earth. 

"There is nothing in the data to support why the stock should have rallied like that," said Jason Helfstein, a tech analyst at Oppenheimer & Co. "The stock move is probably giving back outside gains around the Thanksgiving and Black Friday period, and the ad happens to coincide with that."

Critics of the ad took issue with the character's rail-thin frame in the commercial, which shows a man surprising his partner on Christmas with the gift of a Peloton bike. One Twitter user said the ad portrayed an "apprehensive 105 lb woman whose life was forever changed by her new exercise bike bc she was able to get to her goal weight of 103 lbs." 

"Seeing an actress go from skinny to skinny is boring," another tweeted.

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"Grace from Boston" wears a terrified look on her face as she embarks on her Peloton cycling journey. YouTube/ Peloton

But the backlash also prompted others to defend the ad's tone and message. 

"Unpopular opinion: the Peloton ad is pretty much just a normal commercial for an exercise bike and the collective freak out over it is way weirder and creepier than the ad itself," one Twitter user wrote. 

Apart from the hubbub over its ad, Peloton has also sometimes drawn fire for its hefty prices — the company's stationary bike retails for $2,245, while the treadmill sells for $4,295. Both offer access to interactive classes and instruction for $39 per month.

The company is trying to broaden its appeal by marketing its machinery to more of a mass audience. Customers can pay for the bike through a financing plan that costs as little as $111 per month, with 0% interest. Peloton will also introduce a less expensive treadmill and a new rowing machine in 2020, according to Bloomberg. And on Wednesday the company lowered its digital-only subscription fees from $19.99 to $12.49 a month.

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Peloton

Meanwhile, Raymond James analyst Justin Patterson said the fact that Peloton hasn't canned the ad suggests it's not hurting the company's sales. 

"Peloton suggested they were happy with the ad and it highlighted customer testimonials, so the fact that they didn't pull the ad suggests they aren't seeing any impact from it."

Analyst Ron Josey, whose firm, JMP Securities, co-managed Peloton's IPO, said the introduction of new products at new price points will help drive growth for the company and also boost its stock. 

"What the company has around its subscriber base and the broader convenience of having a connected device in the home is an ecosystem that's hard to replicate."

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