I recently bought Peloton (PTON) stock after news that they’re recalling one of their leading products due to a heartbreaking customer linked fatality. I’ve done more research this weekend and will add to my position next week. Here’s why…
Peloton is trading around 50% below its January high. I love the business and will discuss below how I think the recent problems will help the company become better and stronger into the future.
Here’s the backstory to the problems. Peloton’s market leading treadmill called Tread+ has been pulled up by the US Consumer Product Safety Commission (CPSC) due to 70 injuries and a completely tragic and heartbreaking an infant death.
Peloton initially disputed the CPSC findings, it was their initial reaction to argue that customers are to blame not their products. But that view was completely changed last week. The company decided to recall its Tread+ product worldwide, offering a refund or helping customers create a safe environment if they wished to keep it. They will also invest in new software to help avoid future infant problems by creating pins to unlock, just like mobile phones.
The product, software, customer ecosystem and phenomenal revenue growth are all important. But to me the most important thing is seeing a CEO and management team admit mistakes, take the blame and work towards making things better in the future. Here is Peloton’s CEO fronting the media.
Taking ownership for your mistakes is critical to crush your goals
In 2016 I was interviewed by ABC News on Woolworth’s decision to exit the hardware business (here’s the article). At the time, I said that the decision to cut losses and move on was smart and the new Chairman should be congratulated for making such a move.
The stock has since risen from $20 per share to almost $39 as of the time of writing, not to mention the large dividends that have been paid out along the way.
It’s never too late to make the right decisions.
Great business people like Woolworth’s Chairman Gordon Cairns and Peloton CEO John Foley take responsibility for their company’s actions and make hard decisions. They own their mistakes.
I’ve personally learnt a lot from this and incorporated it into my investments and business leadership skills. Investing and business is a process of taking measured risks and then re-evaluating to cut losses and let gains run. There will be many mistakes along the way. A mature business leader or investors must always own the mistakes, learn the reasons behind them, over-correct and take their team along the process of continuous improvement for all stakeholders involved.
I’ve made a lot of business and investment mistakes in the past but recently I have become a lot better at accepting them. Taking ownership. Our natural instinct is to always fight, deflect, blame others. It takes courage to do the right thing but when you do, it pays dividends in the long term.
Watching Peloton’s success into the future
Peloton has one of the highest NPS (net promoter score) metrics for a company generating quarterly revenue in excess of $1bn in revenue. The health and wellness market is a huge, fragmented and dominated by traditional gyms and vitamin companies who were disrupted during the pandemic.
I’m not sure if people will continue to move back to gyms after the pandemic, especially after building habits on a Peloton machine and tuning into the excellent live class schedule. This is a point Scott Galloway agrees with on his recent Pivot Podcast episode (listen here).
In the past I’ve made great calls on stocks like Facebook, Apple, Twitter, Netflix and Realogy only to have sold them early and not had the patience to wait them out. I won’t be making the same mistake with Peloton, its a long term holding in a very well diversified portfolio.
It wouldn’t surprise me to see potential acquirers pounce on the stock in a takeover bid over coming months. I hope that’s not the case, I want to own it in the long term, especially as it starts to export its successful model to markers like Australia.
The biggest risks are more bad news and customer injuries beyond what we know. The product issues at Peloton also describe how hard it is to get your supply chain right when selling consumable products, particularly when in the billion dollar revenue club. But from the CEO and management team’s error admissions this week, I have more confidence that they’'l mature and get it right.
Next week, I’ll run through my new thinking around the Law of Large Numbers and how I’m using that to manage my stock, crypto (in particular) and real estate investments. Subscribe to get each update as I publish weekly.
Thank you, God bless and have a great week ahead.