Pomerantz LLP announces that a class action lawsuit has been filed against Peloton Interactive, Inc. and certain of its officers. The class action, filed in the United States District Court for the Southern District of New York, and docketed under 21-cv-10266, is on behalf of a class consisting of all persons and entities other than Defendants that purchased or otherwise acquired Peloton’s common stock between December 9, 2020 and November 4, 2021, inclusive (the “Class Period”).
The claims asserted herein are alleged against Peloton and certain of the Company’s senior executives (collectively, “Defendants”), and arise under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) and U.S. Securities and Exchange Commission (“SEC”) Rule 10b-5 promulgated thereunder.
If you are a shareholder who purchased Peloton common stock during the Class Period, you have until January 18, 2022 to ask the Court to appoint you as Lead Plaintiff for the class. A copy of the Complaint can be obtained at www.pomerantzlaw.com. To discuss this action, contact Robert S. Willoughby at firstname.lastname@example.org or 888.476.6529 (or 888.4-POMLAW), toll-free, Ext. 7980. Those who inquire by e-mail are encouraged to include their mailing address, telephone number, and the number of shares purchased.
Based in New York City, Peloton is a fitness-equipment and media company. During the Class Period, Peloton sold internet-connected stationary bicycles and treadmills that were designed and marketed for use in customers’ homes. The bicycles and treadmills include connected touchscreen devices through which customers can access exercise classes and other content. To that end, in addition to the exercise equipment, Peloton sells monthly subscription services that allow customers to access fitness classes using their Peloton equipment, or alternatively to access classes and related content on their own devices, without using Peloton equipment.
For most of 2020 and 2021, as the COVID-19 pandemic and related stay-at-home orders and business closures largely kept individuals out of the gym, the demand for in-home exercise options increased dramatically. Against that backdrop, in the months leading up to the Class Period, Peloton experienced unprecedented demand for its products and services. As Defendant John Foley (“Foley”) confirmed in statements to investors on February 11, 2021, “there’s been crazy demand for our products because gyms have been closed or you didn’t want to go to the gym because you might get COVID there. So, the demand has been through the roof[.]”
The complaint alleges that, throughout the Class Period, Defendants repeatedly and falsely assured investors that Peloton’s recent success was not primarily due to COVID-related increased demand, but rather that the Company’s growth and financial results were sustainable and would continue post-COVID. For example, on December 9, 2020, the first day of the Class Period, in response to an investor’s question about “how a post-COVID world impacts [Peloton’s] view of [its] business opportunity,” Defendant Foley assured investors that Peloton’s results “ha[ve] nothing to do with COVID. That is a human need of I want to get fit, I want fitness in my life in a consistent way; . . . I want it to be convenient, I want it to be fun, I want it to be motivating, and I want it to be a great value. And all of those things are foundational to what Peloton delivers, always delivered it. We delivered it in pre-COVID, during COVID, and we will deliver it post-COVID.”
Defendants also represented to investors during the Class Period that investments in the Company’s supply chain, including increasing the number of bikes and treadmills produced and reducing the average time it takes to deliver products to customers, were sound investments that would enable Peloton to align supply and demand for its products. For example, on February 4, 2021, in a letter to Peloton shareholders, the Company stated that “our supply chain investments over the last several months are helping us better match our supply and demand going forward.” Accordingly, Defendants represented that the rising inventory levels reported in the Company’s periodic financial reports filed with the SEC during the Class Period reflected outstanding demand, including orders that had not yet been filled, rather than excess supply that outpaced waning demand.
Defendants’ Class Period representations that Peloton would continue to succeed and grow post-COVID were false. In truth, Peloton’s Class Period financial results were primarily driven by COVID-related increases in demand for at-home exercise options. As gyms have reopened and other outside-the-home exercise options have become more available because of COVID vaccinations being more widespread and other COVID-related restrictions abating, demand for Peloton’s equipment and subscription services have declined substantially.
Moreover, rather than matching supply and demand, Peloton had a massive growth in inventory that far exceeded customer demand. Further, the Company has admitted that it suffered from a material weakness in its internal control over financial reporting during the Class Period, specifically concerning inventory levels. In light of that material weakness, the Company could not accurately report its inventory levels, and had no sound basis to represent to investors that supply, and demand were aligned.
The truth began to emerge on August 26, 2021, after the market closed, when Peloton disclosed, one day in advance of its announcement of the Company’s financial results for its fiscal year 2021, that “in the course of our fiscal 2021 audit process, a material weakness was identified in our internal controls over financial reporting with respect to identification and valuation of inventory.” In the Company’s Annual Report for its fiscal year 2021, filed with the SEC on Form 10-K on August 27, 2021, it further disclosed that “this material weakness arose because our controls were not effectively designed, documented and maintained to verify that our physical inventory counts were correctly counted and communicated for reporting in our financial statements.”
As a result of these disclosures, the price of Peloton common stock declined by $9.75 per share, or 8.5%, from a closing price of $114.09 per share on August 26, 2021 to a closing price of $104.34 per share on August 27, 2021.
At the same time, however, Peloton made false, reassuring statements to investors, including issuing guidance of $5.4 billion of total revenue for fiscal year 2022 (beginning September 1, 2021), representing 34% year-over-year growth. Discussing that guidance, Defendant Jill Woodworth claimed that “we are entering fiscal 2022 with a normalized backlog for our Bike portfolio and guidance reflects our expectation of continued strong demand.”
Then, on November 4, 2021, after the market closed, Peloton shocked investors when it disclosed that it had revised its full year revenue guidance down to a range of $4.4 to $4.8 billion dollars due to declining demand as its customers were increasingly free to exercise outside the home. And regarding inventory, Peloton disclosed that inventory totaled $1.27 billion, a 35% increase over the prior quarter, 91% of which were “finished products” that the Company still held.
As a result of these disclosures, the price of Peloton common stock declined by $30.42 per share, or over 35%, from a closing price of $86.06 per share on November 4, 2021 to $55.64 per share on November 5, 2021, erasing $8.1 billion in shareholder value.
Pomerantz LLP, with offices in New York, Chicago, Los Angeles, Paris, and Tel Aviv, is acknowledged as one of the premier firms in the areas of corporate, securities, and antitrust class litigation. Founded by the late Abraham L. Pomerantz, known as the dean of the class action bar, Pomerantz pioneered the field of securities class actions. Today, more than 85 years later, Pomerantz continues in the tradition he established, fighting for the rights of the victims of securities fraud, breaches of fiduciary duty, and corporate misconduct. The Firm has recovered numerous multimillion-dollar damages awards on behalf of class members. See www.pomlaw.com.
Robert S. Willoughby
888-476-6529 ext. 7980