Why Peloton's Production Halt Could Cause Repercussions For Affirm

Shares of connected fitness company Peloton Interactive Inc PTON fell sharply lower Thursday after a CNBC report, citing internal documents, revealed the company is temporarily halting production of some of its products as a result of waning consumer demand.

What To Know: Peloton reportedly plans to pause production of the Peloton Bike for two months beginning in February. The company previously halted production of its more expensive Bike+ product in December.

Peloton also plans to halt production of the Peloton Tread for six weeks and doesn't expect to make any Tread+ machines in 2022. Peloton previously halted Tread+ production as well, due to a safety recall last year.

Why It Matters: Affirm Holdings Inc AFRM renewed its merchant agreement with Peloton for another three years in 2020. That partnership will remain in place until September 2023. 

Shares of the buy now, pay later company traded lower in sympathy with Peloton shares Thursday. 

Related Link: Why Shares Of Affirm Dipped On Thursday

Affirm generates such a large percentage of its revenue from Peloton that the company cited it as a risk factor in its IPO filing:

"A large percentage of our revenue is concentrated with a single merchant partner, and the loss of this merchant partner or any other significant merchant relationships would materially and adversely affect our business, results of operations, financial condition, and future prospects."

As Affirm's top merchant partner, Peloton represented approximately 28% of the company's total revenue for the fiscal year ending in 2020, according to the filing.

Affirm also has large partnerships with Amazon.com Inc AMZN and Shopify Inc SHOP.

AFRM, PTON Price Action: Affirm has traded as low as $46.50 and as high as $176.65 over a 52-week period. The stock closed down 2.33% at $62.80.

Meanwhile, Peloton's stock plummeted 23.93% to close at $24.22.

Photos: courtesy of Peloton & Affirm.