Peloton Gives Back 9% Tuesday, was it the Ad that Did It?

Peloton

Peloton’s IPO started out very slowly, spending the first month of its life underwater. November brought glad tidings and it suddenly was up about 50%. Then came the ad.

Like most things, the social media revolution that has now gripped the world has its good and bad side. In prior times, people relied on word of mouth to gossip, whether it be face to face or on the telephone. Gossip has been elevated to a whole new level now and the backlash that we’re now seeing with Peloton’s new holiday ad to look to drum up more interest in their stationary bikes might represent a new low for social media if we consider both how odious and how loud this drum beating has become.

Perhaps we shouldn’t blame social media too much, and this has allowed people to share with one another to their heart’s delight and allow for the speed and the reach of foolish talk to simply explode.

People have been complaining about ads since the dawn of advertising, and while ads aren’t designed merely to entertain but instead to seek to persuade, there are always going to be people that complain about just about everything. The difference now is that these complaints get transmitted along the information highway through services like Twitter, which is organized in a way that we can become exposed to a barrage of opinions on things that were once much more limited in scope, where we now draw from the pool of all users rather than just a few people that we know personally.

If you, for instance, watch Peloton’s ad and for some reason don’t like it, and you want to interact with those who don’t like it either, it can be very easy to find what you are looking for in whatever excess you desire, transmitted at nearly the speed of light.

There’s more to this particular story than this though, as Twitter is just the medium here and it’s the underlying views that drive these things, even though it makes it so much easier to find like- minded people or those completely opposed to your views than it ever was. We can go all the way to the fringe if we like, and the people who still believe the earth is flat must be having a real field day right now, regardless of how small of a percentage of the public may be on board.

I checked this, and sure enough, there is a Flat Earth Society on Twitter with over 86,000 followers. I seem to be one of the few people still alive with no interest in social media at all, but I can imagine that you can find the most foolish of views being popularized, but the power that such things have has really exploded now.

I’ve now been even more confident about this after becoming familiar with the way people have responded to this Peloton holiday ad. I do remember seeing it a few days ago, and like many, did not think that there was anything remarkable about it, and it actually seemed pretty good, targeting men who may be in the market to buy one of these things for their wives for a Christmas gift.

The woman did seem to be very happy about her husband’s purchase of the bike, not surprisingly since portraying this was its major goal, and I could not have imagined that this would blow up so much to even infringe upon the financial world, becoming a lead story on a major financial site such as Barron’s.

Peloton launched an IPO a couple of months ago, and this has been in the financial news since, even though its degree of interest has paled compared to the big IPOs of the year, but no more. Peloton’s launch looked like yet another crash at the end of the runway for its first month of life. In the second month, it got off the ground and actually required us to raise our gaze quite a bit, where it erased the 25% hole it dug for itself in the early stages and added 36% of lift from its issue price.

We went from a real dog that served to dissuade companies from releasing their own IPOs at the launch point to a real star of the 2019 IPO market, at least for now anyway.

Could this Ad Reaction Really Topple the Stock Like This?

What is really amusing about this story is that, after a rough Tuesday where it gave back 9% in a single day, is the fact that people are really pointing to the backlash surrounding Peloton’s holiday ad as the reason or a major reason at least why it sold off like this.

The Barron’s article on this did provide an embedded video of the ad although it didn’t even suggest what could be wrong with it, other than saying a lot of people were up arms about it. The title of the article is “Peloton Stock Was Recovering Until This Viral Ad.” We’re not sure whether that was meant to be tongue in cheek or not, but at the very least, their readers are left with a sense that the ad might have had something to do with the selloff.

It took some digging but I finally discovered what the objections to this were, and found such things such as being upset at the husband for thinking that his wife needed to lose weight. By all accounts, she did not seem to at all, nor was weight loss even brought up as the goal of this.

With such a high percentage of the population being overweight these days, and with many no doubt fixated on this, perhaps it really was true that they saw the bike, thought of their weight, determined that the woman did not need to lose any, and decided that this was completely unfair to the woman to even suggest she needs it. This is what we call projecting our anger, in a manner that is particularly disjointed, and the bike deserves better.

The fact that one might actually want to use this product for its main use, to increase fitness, somehow got missed. Regardless, we may wonder how anyone of a sound mind could think this, but that’s the beauty of Twitter, as it allows easy access to various levels of unsoundness and can concentrate it well enough that we get this.

This sort of thing is contagious, where people who may not have otherwise thought of such things being inspired by anger and contempt and allow them to let off some steam as well about such things as how important body size is felt to be, or who knows what else.

If the intention of Peloton was to demonstrate their bike’s power to cause weight loss, they surely would have used an overweight model who achieved this goal by the end of the commercial, like many ads do. This might be the only exercise equipment video that did not look to milk the weight loss cow, yet it somehow became vilified for this.

There were some other criticisms as well, of a similar level of ridiculousness, such as the expression on the woman’s face at one point in the video which was described by some as “help me.” The expression may have been a little over the top, but even if they showed her rolling on the floor and laughing hysterically with glee, this is an ad after all, not a video that subject to the scrutiny of critical acclaim that a movie might be in consideration for an Academy Award.

I’m sure that Peloton’s intent with this ad wasn’t to upset people, but there is only so much that you can do it seems. As long as enough people are persuaded to buy the thing, this doesn’t really matter, and they did a good job at least of planting the idea into our heads that our wives may enjoy this as a gift, regardless of the reason they may want it, which ironically will often cash out to wanting to lose weight primarily, and often not without cause.

If they instead are thinking things like how dare that man suggest that his wife need to lose weight, and actually get upset about this, this clearly indicates that they do have some things to work on themselves. Their bodies may or may not be fat, but their heads surely are.

To suggest that Tuesday’s selloff was precipitated by this spastic discontent is in the same category. For starters, Peloton’s stock is still up 14% since the ad was released, even counting Tuesday’s big move down, and Peloton stock moved up a lot the very day that this frenzy hit Twitter.

Among the people who trade such things, this could not possibly have been seen as very meaningful, especially of the magnitude that would cause such a downward move. If they or anyone were this upset in any meaningfully way with this ad, and voted against it with their stock, their votes were completely drowned out by those continuing to buy it and send the price up even more.

Anyone who has decent enough understanding about how stocks work spotted that this was just profit taking, but with those unfamiliar with the concept, they would have to seek out something else to explain it, and the fact that this ad is under fire on Twitter was perhaps the easiest thing to grab.

This Ad May Work Out Much Better than Anyone Could Have Ever Dreamed

The only potential effect of this sideshow is that people might be worried that the ad might reduce instead of increase demand, and while those who have participated in this little demonstration may had theirs decreased, there’s no good reason to think that the scope of this will produce any material effect upon the company’s business results.

On the contrary, this may be more than Peloton could have ever hoped for. To say that this has attracted a lot of publicity would be putting it mildly, and many more people are now familiar with them and their bike than such a small ad campaign could have ever dreamt of.

The ad is getting far more views pushed by the coverage and social media sharing of this than they paid for, and while it is being suggested that this ad should be regrettable for them, perhaps nothing could be further from the truth.

If actual valid criticisms were being made here, that would change things, but they are neutral at worst, in any view remotely sensible view at least, and may even evoke some sympathy for Peloton from our seeing them attacked so capriciously.

This ad might even go down as one of the most brilliant ads of all time, even though it is unlikely that any of the unexpected benefits were created intentionally. This would have required that they be either mad or super genius to anticipate this script in advance, and may even require both together.

The fate of Peloton’s IPO in the near term will not come down to rabble rousing but instead on now confident traders are that the nice run that the stock had in November will continue. It’s too early to say too much about this, given that this reversal is only one day old and it is still much higher than it was in October.

This means that it is subject to even more profit taking, but we need to realize that on the way up, both traders and investors participated, so if the traders leave, the people not so put out by this will still remain. Given that there is no good organic reason to be bearish on this other than to think that it may have gotten a little ahead of itself lately, this pattern still presents as bullish on balance, at least so far.

This could even be seen as an opportunity to buy the dip, and this will at least serve to dampen those eager to take the money and run. It is always wise to wait for the pain to subside before we jump in, and entering here for a trader wouldn’t be the best move, invoking the popular warning of not trying to catch falling knives.

Investors may want to buy this dip, but even with investors who may wish to hold this stock for years, the amount that we get nicked by sticking our hands in too soon will leave a scar that will last the life of the investment, where we could have instead been up that much more in the end had we been more patient and wise.

Wednesday’s trading may tell us a lot about this, especially with the fear that has gripped the market from yet another sharp-edged Trump tweet continues to be better digested. This could provide a good opportunity for traders once the dust settles, but we need to wait until it does as always.

John Miller

Editor, MarketReview.com

John’s sensible advice on all matters related to personal finance will have you examining your own life and tweaking it to achieve your financial goals better.