Peloton competitor Tonal cuts 35% of jobs ahead of potential recession, IPO

Tonal fitness at home.

Source: Tonal

Tonal, the connected fitness equipment maker that counts tennis superstar Serena Williams and Amazon’s Alexa fund as backers, is cutting 35% of its workforce, affecting all levels of its business, it has learned. CNBC.

The company employs about 750 people today, compared to just over 110 before the Covid-19 pandemic, CEO Aly Orady said in an interview.

Orady also emphasized the need to be profitable, particularly as the company contemplates an initial public offering. Tonal has not been profitable in the past, he said. But the job cuts will put the company on track to make money in a matter of months, he added.

Tonal, which sells wall-mounted workout devices for $3,495, saw rampant growth in 2020 and 2021 as consumers were stuck at home and looking for ways to work up a sweat. Tonal’s brand recognition also skyrocketed when it tapped star athletes like LeBron James and Williams to appear in its commercials. It has raised $450 million in funding, to date, and at one point in 2021 was valued at up to $1.6 billion.

But for now, Tonal is hitting the brakes. It joins a list of companies, including competitor Peloton, that are cutting staff to cut costs and readjust to new levels of consumer demand for their products. Businesses are simultaneously dealing with red-hot inflation in everything from raw materials to fuel to workers’ wages, and many are bracing for an economic slowdown, even if a recession isn’t certain.

“As we’re heading into a recession, and a lot of us think we’re heading into a recession, it’s really important that we become a business that’s here for the long haul,” Orady said in an interview. “What we’re doing is effectively moving from a hyper-growth business … to a more sustained growth business.”

Tonal did not disclose exactly how much money it plans to save from the layoffs. He also did not say whether his valuation has been adjusted in private markets.

“Public markets no longer reward hypergrowth when it comes to profitability. And as such, private market investors no longer invest as many dollars or as aggressively to support companies through hypergrowth,” Orady said. “Those dollars just aren’t there like they were a year ago.”

Investors are increasingly turning away from entities that are losing money, he said. It shows up in the shares of some of the publicly traded companies that fit this bill.

Peloton shares, for example, hit a new record low on Wednesday at $8.66, having fallen more than 70% year-to-date. Peloton’s losses in the three-month period ending March 31 widened to $757.1 from a loss of $8.6 million a year earlier.

Allbirds, a shoemaker that has posted losses since going public last year, has seen its share price fall more than 65% this year. Shares of eyewear retailer Warby Parker, which went public through a direct listing in 2021 and is also losing money, are down more than 70% so far this year.

Orady said Tonal is focused on lowering customer acquisition costs, and will do so in part by reducing advertising. He said he attributes any slowdown in sales in the last 90 days to Tonal backtracking on marketing, but overall demand has held steady.

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

All Tonal employees affected by the job cuts will receive a minimum of eight weeks of continuous pay, the company said, as well as health care benefits through the end of September.

Tonal also said in its memo to workers that it is offering extended stock grants for all employees to become shareholders, including accelerated vesting of stock options and an extension in the window of time option holders have to exercise. your stock options for up to four years.

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