Wahoo Fitness, has been dealt a blow by Moody’s Investors Service, which downgraded the company’s debt ratings, according to SGB Media. This follows Wahoo’s missed debt service payment, which was due on March 31, 2023, and the expiration of the applicable grace period.
The downgrades, which include a Corporate Family Rating of Ca and a Probability of Default Rating of D-PD, reflect Moody’s view on recovery, given Wahoo’s narrow product focus in a discretionary and competitive niche market. The company’s small revenue scale and increased competition in smart trainers, including lower-priced alternatives, have placed pressure on earnings and cash flow. This, coupled with moderation in demand following the initial surge during the pandemic, has created significant challenges for the company.
Moody’s analysis of Wahoo Fitness’ debt rating downgrade shed further light on the challenges that the company faces. The ratings agency stated that the downgrade reflects the company’s missed payment past the grace period, and that the likelihood of a material debt restructuring is high. Moody’s also noted that the company is in talks with its lenders to explore strategic alternatives for pursuing a sustainable capital structure. The ratings downgrade, combined with Moody’s view of recovery, underscores the significant obstacles that Wahoo must overcome to maintain its position in the indoor cycling industry.
Wahoo Fitness has built a reputation for its high-quality indoor trainers and strong brand recognition in the indoor cycling industry. The company has successfully introduced several new products over the past year, such as the Wahoo KICKR 6. Additionally, the company has continuously updated its Wahoo RGT app with new features such as voice chat, and steering.
Wahoo has a history of releasing new products and updates every year, particularly during the summer months and ahead of the indoor training season. This strategy has helped the company maintain its strong market position despite facing increased competition in the niche indoor cycling market.
Despite these strengths, Moody’s ESG credit impact score for Wahoo is very highly negative (CIS-5), driven by its highly negative exposure to governance risks related to its concentrated ownership, aggressive financial strategy and risk management, and missed interest and principal payments.
Wahoo Fitness is not the only company in the indoor cycling industry that is facing challenges. Peloton Interactive, a major competitor and industry behemoth, has also experienced a decline in web traffic during its third fiscal quarter, according to Morgan Stanley, causing its stock to plummet even further. Despite being above pre-COVID levels, the 2-year-over-year trends have continued to deteriorate, indicating that the company is struggling to maintain the momentum it had during the heavily promotional holiday season.
The indoor cycling industry is grappling with significant challenges as consumer demand moderates, and competition increases. While companies such as Wahoo and Peloton have displayed resilience in the face of these difficulties, the future of the industry remains uncertain. Another major player in the space, Zwift, announced last month that it would undergo a round of layoffs and a restructuring process, resulting in a 15% reduction in the workforce, or roughly 80 employees. This development underscores the ongoing pressures that indoor cycling companies face as they navigate a rapidly evolving market.