Brutal……things are getting darker and darker in the bike biz.
Word on the street is that one major supplier owes another hundreds of millions and can’t come up with it.
The story is not over yet…
Who?
I’m not seeing the connection between over-extended retailers and Zwift. Even if everybody who has a bike isn’t buying a new one for 5 more years, they are still riding Zwift.
I don’t have definitive info on either, but if accurate, I would assume that the supplier owed the money is also a factory (hence the large amount of debt).
And that narrows down the field of contenders for that role considerably.
Probably saw a massive growth slowdown or contraction. Need to cut spending fast. Zwift runs on AWS servers so they can cut that virtually instantly. Cut 15% of the workforce to further slow the cash burn. Last would be to close up some offices if they hadn’t done so a long time ago (2020).
Lucky for them, they don’t sell physical products so they don’t have a giant warehouse full of bikes purchased on credit (Peloton).
Co-CEO probably realizes IPO isn’t happening anytime soon. Stock options worthless. Better to chase one of those red hot AI startups. Bike industry is floundering.
Heard this debt rumor yesterday (links directly to the rumor):
TLDW: one major manufacturer is in deep to another major manufacturer, as well as a major component company. In both cases payments are past-due. I can’t vouch for any of this, but missed debt payments are bad.
Well, actually, they do. I’m sure they spent a ton on the Tron bike, which never materialized, plus the various iterations of the Zwift Hub which did go to market, but was discontinued (right around the time when they settled with Wahoo), and now the Hub One and the Zwift Play controllers. I have no idea how much of that they actually manage and/or build, but it’s all money invested in physical product.
Peak users is not a good metric for a sustainable business model.
Just like much of the physical side of the bike industry, Zwift had explosive growth during COVID. As a result, they scaled up massively during the boom. Now that the bubble has popped, things have plateaued ( at best for them) and they no longer need all those people.
The facts are pretty evident that they are hurting financially….two massive rounds of layoffs in the last year or so alone.
The question is whether they are right sizing to stabilize the company or if they are hoping they can reduce costs enough to entice someone to purchase them. But I have no idea who would want to purchase them at this point given the financial realities and a flat growth projection.
That is not good
There is probably only one relationship that could evolve to that sort of debt. The resolution could be interesting. Perhaps the manufacturer ends up owning a chunk of the brand and history repeats itself.
Yeah but the marginal costs to Zwift to add users should have been rather low. More users might have exposed some code optimizations they needed but that shouldn’t require a lot more programmers. Anyone with a brain should have seen that the lockdowns and therefore the cycling growth weren’t going to last forever (even a few years). It should have been easy to avoid ballooning costs. In fact, they should have become more profitable by having more customers to pay for their fixed costs, raising profit per user.
Hardware manufacturers were in the very difficult position of having insane demand right when there was no supply. Since there’s not that many manufacturers, that meant that brands had to guesstimate the ongoing demand with uncertainty about when it would taper off and when product would actually be ready for customers (disrupted supply chain). And manufacturers could tell brands “If you don’t order at least this many, we’re not going to bother with you”.
Zwift management seemed to get spooked by competitors getting funding, causing them to overreact and make dumb decisions
They were also attempting to expand into other areas…hardware, eRacing, massive marketing spends, etc. They also fooled themselves into believing they could be something of a rival to Peloton and their growth potential was almost unlimited.
This isn’t “getting spooked” by the competition…this is a pretty dire situation from what I am hearing. I know firsthand of a team that shrunk by over 60% alone yesterday…and they had dozens on their team.
Well based on the fact that Giant is the one making the bikes, one of Specialized, Cannondale or Trek allegedly owe Giant hundreds of millions.
Specialized doesn’t use Giant as a manufacturer. I don’t know about Cannondale…
Cannondale being owned by Pon would make me think they could bail their subsidiaries out in such a situation. I saw another video that strongly implied the company in trouble was Trek, but I don’t recall which it was.
I meant that they were trying to keep up with the Joneses by competing with Peleton, RGT, Wahoo, etc who were seen as competing with Zwift directly or just having synergies, when they should have been focusing on their core business. I meant it like greedy FOMO.
I believe their current troubles are real and I feel for those affected employees.
Gotcha…Agreed, but i don’t think they were too worried about RGT / Wahoo / Rouvy, etc…but somewhere along the lines they thought they could compete with Peloton and sought investments to go after that.
I do wonder how much of that was Eric Ming and how much was the PE guys not understanding what they had invested in (just as the Peloton PE guys did not understand what they had invested in).
Most of these types don’t want to build a long term sustainable company. When they see an $8B IPO and a stock run up like PTON, they think they can do it too.
Exactly, seems like a combination of unrealistic growth plans, lack of focus and poor execution. Plus huge marketing spend. Now having to slash costs and refocus offering.
TR is interesting to contrast given its straightforward platform, focus on customers and lack of outside capital. I can’t speak for performance but I’d imagine and hope they do fairly well?