Competitor Peloton Tonal cuts 35% of jobs ahead of possible recession, IPO

Tonal, the connected fitness equipment maker that backs tennis superstar Serena Williams and the Amazon Alexa Foundation, is cutting 35% of its workforce, affecting all levels of its business, CNBC has learned.

Today, the company employs about 750 people, up from just over 110 before the Covid-19 pandemic, CEO Ali Oradi said in an interview.

Oradi also stressed the need to make a profit, especially as the company prepares for an initial public offering. According to him, Tonal has not been profitable in the past. But the job cuts will allow the company to make money within a few months, he added.

Tonal, which sells wall-mounted workout devices priced at $3,495, experienced explosive growth in 2020 and 2021 as consumers were stuck at home looking for ways to sweat. Tonal’s brand awareness also skyrocketed when sports stars such as LeBron James and Williams starred in ads. It has received $450 million in funding to date and was valued at $1.6 billion at one point in 2021.

But for now, Tonal is slamming on the brakes. It joins a list of businesses, including rival Peloton, that are cutting headcount to cut costs and adjust to new levels of consumer demand for their products. Businesses are simultaneously battling hot inflation in everything from raw materials to fuel to workers’ wages, and many are bracing for slower economic growth even if a recession isn’t guaranteed.

“As we’re heading into a recession – and many of us believe we’re heading into a recession – it’s important that we become a long-term business,” Oradea said in an interview. “What we are doing is an efficient transition from a fast growing business… to a business with sustainable growth.”

Tonal did not say exactly how much money it plans to save through layoffs. He also did not say if his private market valuation had been adjusted.

“State markets no longer reward hypergrowth when it comes at the expense of profitability. And that’s why private market investors are no longer investing that many dollars or so aggressively to support businesses through hypergrowth,” Oradea said. “Those dollars just aren’t as popular as they were a year ago.”

According to him, investors are increasingly avoiding loss-making organizations. This is evident in the stocks of some publicly traded companies that meet these requirements.

Peloton shares, for example, hit a new all-time low of $8.66 on Wednesday, down more than 70% year-to-date. Peloton’s losses for the three-month period ending March 31 rose to $757.1 from an $8.6 million loss a year earlier.

Allbirds, a shoe maker that has recorded losses since going public last year, has seen its share price drop more than 65% this year. Shares in eyewear retailer Warby Parker, which went public through a direct listing in 2021 and is also losing money, are down more than 70% year-to-date.

Oradi said Tonal is focused on cutting customer acquisition costs, and it will do so in part by cutting back on advertising. He said he attributed any slowdown in sales over the past 90 days to Tonal moving away from marketing, but overall demand remains solid.

The company also recently raised the price of its hardware by $500 from $2,995 to $3,495.

The company said all Tonal employees affected by the job cuts will receive at least eight weeks of regular wages, as well as medical benefits, through the end of September.

Tonal also said in a memo to employees that it is offering an extended share vesting for all employees to become shareholders, including an accelerated vesting of share options and an extension of the time period during which option holders must exercise their share options for up to four years.