Peloton stock continues falling on recall of over 2 million bikes

Yahoo Finance Live discusses a drop in shares of Peloton stock after the company announced a recall of more than 2 million bikes.

Video transcript

- My play today is Peloton, shares of the home fitness brand slipping as the company announced a recall for more than 2 million bikes. Now in a joint release with the US Consumer Product Safety Commission, Peloton says that the seat post can brake unexpectedly during use and create a potential fall and injury risk.

Now, this isn't Peloton's first run-in with the CPSC, either. In 2021, Peloton recalled more than 125,000 Tread+ treadmills following a fatal treadmill accident. That incident sank shares more than 15% in one day and eventually ended up with Peloton paying a $19 million fine.

But this bike recall is expected to be different, as the company is providing a free replacement seat, but not a full bike refund. Remember, with the treadmills, Akiko, they were refunding full treadmills. It was a lot bigger of a deal, it seems.

Our friend Simeon Siegel over at BMO Capital Markets said that he thinks this is not nearly as big of a deal as maybe the headline looks like. And I think when you think about just from an investor perspective, you're just sending people seats now. You're not taking bikes all the way back. You're not refunding it.

So just from an overall cost structure aspect, it might not be as big of a deal. But I did notice on Amazon, they were not selling the bikes right now. So that will be the long-term thing to watch, is when do these-- this is the original Peloton Bike. When do those bikes go back on sale, and how much does Peloton lose out on sales because of it, I think is a big question.

- Yeah, Josh. The point you make on costs I think is a good one. But to Simeon's point, it's worth putting this in context, right? So Peloton got 35 reports of unexpected breaks in the seat between January 2018 and this month, but they sold 2 million bikes during that time, so it's still a very small portion.

But it goes back to what happened in 2021. This is the second thing for Peloton now. Is there a bit of question about confidence in their product and the safety? And then of course you go back to the earnings and the numbers that we got from the company.

Things are improving. Their losses are narrowing. But they also lost subscribers in the last quarter, so it's a bit of a mixed picture for Peloton. Sure, they don't want to bet their future still on just the hardware. They have been moving more and more into subscriptions. But that's still the big moneymaker.

And I wonder, if you're a consumer out there saying, I'm going to buy Peloton's products, are you going to ask whether it's safe now?

- Yeah, I think a lot of people are questioning them. They also had the issue with the bike pedals, going back a couple of years as well. So this is the fourth time that we have seen a safety issue come up with Peloton.

We talk about the fact that their sales growth has been slowing now for quite some time. Barry McCarthy-- you just referenced the recent earnings report. He was saying that this quarter was already set up to be one of the most challenging year for the company ahead of this news today.

So clearly it's going to be a tough couple of quarters here for Peloton. Lots are even questioning whether or not we're going to see a significant turnaround in this business, whether or not it could potentially be a takeover target by one of those larger companies that are looking for more of a footprint within the workout, within the homeware-- home gym equipment space.

So I don't know. We'll see. I think there's a lot of questions about the momentum that Peloton had during COVID and whether or not anything like that could be recreated going forward.

- Yeah, the company has made it clear the turnaround is going to take a while. The question is will investors stick around for that.