Peloton Backpedals In Right Direction

Peloton Interactive built its business to delight its customers. Now it must do the same for its shareholders.

Peloton said Tuesday that it will stop producing its own hardware, exiting all owned manufacturing operations and expanding its relationship with its Taiwanese manufacturer, Rexon Industrial Corp. The move comes as Peloton’s new Chief Executive Barry McCarthy works to right the company’s financials, unwinding big, and in hindsight naive, bets co-founder John Foley made during his tenure.

Peloton’s shares, which have lost 92% of their value over the past year, jumped by almost 5% after the market’s open. A shift to outsourced manufacturing came as a relief. The about-face highlights what Mr. Foley got spectacularly wrong: Peloton acquired Taiwan-based manufacturer Tonic Fitness Technology back in 2019—a move Mr. Foley said was meant to help Peloton own the supply chain in an effort to increase scale and capacity, as well as to “delight” its members.

But, as online retailer Stitch Fix, another business currently undergoing major restructuring and suffering a similar stock price implosion also is learning, it is very hard to own every piece of your customers’ experience and grow exponentially without losing your investors. The numbers simply don’t add up.

Customers probably won’t care where their exercise bike is made, and in fact Rexon and other contract manufacturers had already been building some of Peloton’s components and equipment. Apple, a company with a reputation for design and a loyal customer base, outsources its manufacturing, largely to China. That wasn’t always the case, but outsourcing went a long way toward making the company highly profitable, courtesy of current Chief Executive Tim Cook. In Peloton’s case, it is worth noting that Rexon builds the company’s Tread treadmill and built its recalled Tread+, the sales of which are still on hold. As long as there are no more recalls, Peloton users are there for the company’s content, with the pretty hardware just a means to the end.

Mr. Foley wanted Wall Street to see Peloton as a growth company, and that is how it was valued at its peak. Ultimately, though, there are only going to be so many people interested in sweating profusely on an expensive stationary bike alongside kindred endorphin seekers the world over. As BMO analyst Simeon Siegel put it, Peloton is a company with a phenomenal stable of existing users and right now, it should be focused on “bear hugging” those loyalists.

Data from UBS show that adoption levels of Peloton’s cheaper app, which the company views as a key customer acquisition tool toward its more expensive subscription, continued to decline in May and early June. It also showed active users declining since January. YipitData shows subscriber retention for fiscal 2022 has slightly underperformed historical averages and that churn increased in June year over year. More broadly, Similarweb data shows “home fitness” web traffic declining 24% year over year for the most recently tracked two-week period in late June—the largest annual declines logged by the firm this year.

Wall Street will have to wait for Peloton’s fiscal fourth-quarter report for more granular details on how exactly Tuesday’s announcement will impact the company’s cost structure. A Peloton spokesperson confirmed the company would cut about 570 employees in Taiwan, but that 100 employees would remain in that business unit focused on quality control, engineering and research and development. And Peloton will get a new chief financial officer in Liz Coddington—previously of Amazon.com and Netflix—after the company said Jill Woodworth, who had served in that role since 2018, will step down.

The company we once knew as aspirational is quickly becoming a commodity. It will try to prove to its investors that it can at least be a hot one.

An original watercolour illustration for the cover of Harry Potter and the Philosopher’s Stone, 1997 — the first book in J.K. Rowling’s hit series—could sell for US$600,000 at a Sotheby’s auction this summer.

The illustration is headlining a June 26 sale in New York that will also feature big-ticket items from the collection of the late Dr. Rodney P. Swantko, a surgeon and collector from Indiana, including manuscripts by poet Edgar Allan Poe and Arthur Conan Doyle, author of the Sherlock Holmes books

The Harry Potter illustration, which introduced the young wizard character to the world, is expected to sell for between US$400,000 to US$600,000, which would make it the highest-priced item ever sold related to the Harry Potter world. This is the second time the illustration has been sold, however—it was on the auction block at Sotheby’s in London in 2001, where it achieved £85,750 (US$107,316).

The artist of the illustration, Thomas Taylor, was 23 years old at the time and a graduate student working at a children’s bookshop. According to Sotheby’s, Taylor took a “professional commission from an unknown author to visualise a unique wizarding world,” Sotheby’s said in a news release. He depicted Harry Potter boarding the train to Hogwarts on platform9 ¾ platform, and the illustration became the “universal image” of the Harry Potter series, Sotheby’s said.

“It is exciting to see the painting that marks the very start of my career, decades later and as bright as ever! It takes me back to the experience of reading Harry Potter for the first time—one of the first people in the world to do so—and the process of creating what is now an iconic image,” Taylor said in the release.

Meanwhile, to commemorate the 175th anniversary of Edgar Allan Poe’s For Annie , 1849, Sotheby’s recently reunited the autographed manuscript of the poem with the author’s home, Poe Cottage, in the Bronx.

The cottage is where the author lived with his wife, Virginia, and mother-in-law, Maria Clemm, from 1846 until he died in 1849. The manuscript, also from the Swantko collection, will remain at the home until it is offered at auction at Sotheby’s on June 26 with an estimate between US$400,000 and US$600,000.

The autographed manuscript will remain at Poe Cottage until it is offered at auction at Sotheby’s on June 26.
Matthew Borowick for Sotheby’s

Poe Cottage, preserved and overseen by the Bronx County Historical Society, is home to many of the author’s famous works, including Eureka , 1948, and Annabel Lee , 1927.

“To reunite the For Annie manuscript with the Poe Cottage nearly two centuries after it was first composed brought to life literary history for a truly special and unique occasion,” Richard Austin , Sotheby’s Global Head of Books & Manuscripts, said in a news release.

For Annie was one of Poe’s most important compositions, and was addressed to Nancy “Annie” L. Richmond, one of the several women Poe pursued after his wife Viriginia’s death from tuberculosis in 1847.

In a letter to Richmond herself, Poe proclaimed For Annie was his best work: “I think the lines For Annie much the best I have ever written.”

The poem was composed in 1849, only months before Poe’s death, Sotheby’s said in the piece, Poe highlights the romantic comfort he feels from a woman named Annie while simultaneously grappling with the darkness of death, with lines like “And the fever called ‘living’ is conquered at last.”

Poe Cottage, preserved and overseen by the Bronx County Historical Society, is home to many of the author’s famous works, including Eureka, 1948, and Annabel Lee,, 1927.
Matthew Borowick for Sotheby’s

In the margins of the manuscript are the original handwritten instructions by Nathaniel P. Willis, co-editor of the New York Home Journal, where Poe published other poems such as The Raven and submitted For Annie on April 20, 1849.

Willis added Poe’s name in the top right and instructions about printing and presenting the poem on the side. The poem was also published in the Boston Weekly that same month.

Another piece of literary history included in the Swantko sale could surpass US$1 million. Conan Doyle’s autographed manuscript of the Sherlock Holmes tale The Sign of Four , 1889, is estimated to achieve between US$800,000 and US$1.2 million.

Peloton Backpedals In Right Direction

Fitness company says it will outsource its manufacturing as it steers toward more sustainable growth.