(Bloomberg) -- With millions of consumers stuck at home due to the coronavirus in late 2020, Carl Daikeler found the perfect time to raise money for his at-home fitness company, Beachbody Co.

Daikeler opted for the fast track, a merger with Forest Road Acquisition Corp., a shell company with celebrity backers including basketball great Shaquille O’Neal, civil rights activist Martin Luther King III and two former Walt Disney Co. executives, Kevin Mayer and Tom Staggs. 

But now Beachbody looks like a cautionary tale for investors who bought into the SPAC craze, particularly deals featuring celebrity sponsors -- and another casualty in the home fitness market after Peloton Interactive Inc. announced it’s slashing costs to cope with slowing demand. 

Shares of Santa Monica, California-based Beachbody, which sells exercise bikes and online workouts, have tumbled more than 80% to $1.64 since the merger was completed in late June, significantly worse than even the 55% fall in the De-SPAC Index. The company’s big bet on bikes has turned sour as demand plummeted.

“We have to make changes,” Daikeler said in an interview. “Our job right now is to operate this business responsibly and appropriately into the demand that we can see being created in the appropriate spots and versus what might have been represented a year ago.”

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Daikeler co-founded Beachbody in 1998 with his then co-worker Jon Congdon. Those were the days when living room exercise routines came on videocassettes. The two met at direct-marketing company Guthy-Renker Corp. and started Beachbody with $500,000 in money from angel investors.

At that point, Daikeler already had years of experience making infomercials. In 1994, he helped launch the 8-Minute Abs video. More hits followed, including P90X, a 90-day home boot camp created by celebrity trainer Tony Horton, and Insanity, a 60-day intensive workout. They were marketed in late-night infomercials featuring buff instructors sweating it out in studio gyms promising “a year’s worth of results in just two months.” 

Since 2015, Beachbody has offered an online service that allows paying subscribers to access its deep library of fitness programming from connected devices. Marketing now includes social media and a network of influencers who sell the products.

During the early days of the pandemic, with Peloton emerging as a hot stock, Daikeler saw an opportunity to get in the exercise bike business, a category he’d long been intrigued by. Raine Group, an investment bank and backer of Beachbody, introduced Daikeler to MYX Fitness, another bike maker. Its $1,400 product is slightly less expensive than Peloton’s.  

Daikeler agreed to buy MYX in November 2020. That same month, Raine bankers reached out to Mayer, the former head of strategy at Disney and an adviser to Forest Road, which was in the process of raising $300 million from investors. Raine told Forest Road it was in the late stages of discussions with other potential partners and the SPAC would have to move quickly, according to a public filing. On Dec. 13, just two weeks after being contacted by Raine, Forest Road made an offer for Beachbody, valuing the business at $2.9 billion. Negotiations and due diligence continued for several weeks, however.

Companies in traditional initial public offerings usually avoid giving sales and earnings projections to avoid liability, but SPAC promoters often are more comfortable giving them out because the shell company’s shares already trade. Before its merger, Beachbody released five years of forecasts, which estimated that by 2025 the company would be generating earnings before interest, taxes, depreciation and amortization of $532 million on sales of $3.3 billion. 

The projections may have led investors to overvalue Beachbody, said Donghang “DH” Zhang, who teaches finance at the University of South Carolina and has studied SPACs. 

So far, the company has struggled to compete with the likes of Peloton. After completing the merger, Beachbody locked itself into purchase agreements for new bikes just as more consumers were returning to gyms and more at-home fitness companies were piling into the market. 

With demand waning, the company funneled millions of dollars into ramped-up marketing efforts. But due to technological issues, a key addition to Beachbody’s online platform -- a feature providing live, interactive classes with spin coaches -- was slow to roll out. The delay dampened potential interest in the new bikes.

In November, Beachbody reported that quarterly sales fell 17% to $208.1 million, and posted a loss $43.4 million before interest, taxes, depreciation and amortization. D.A. Davidson analyst Linda Bolton Weiser called the results a “complete disaster,” although she still recommends buying the stock.

The company also reduced its forecast for the year, guiding investors toward sales of no more than $830 million and a loss nearing $110 million, in what was another downward revision. 

Loop Capital Markets analyst Daniel Adam said the company made a bad bet with the MYX acquisition, which cut into cash reserves, alarming analysts and investors. He suggests that the company sell the bike business.

“They wanted to have that Peloton-like multiple associated with the stock,” he said. “They thought they would see demand outstrip supply.”

Daikeler attributes the poor results to a decline in demand for at-home fitness as the pandemic dragged on, and a more challenging media environment, marked by rising costs. 

“That’s a lot of disruption to handle at one time,” he said. 

Daikeler, who hasn’t sold any of his more than a 40% stake in the company since going public, said he’s forgoing his salary to help make up for the shortfall. He’s confident the company, with 2.7 million customers streaming its workouts, will get back on track and become profitable again. He doesn’t regret making the MYX deal either. 

“Despite everything you might read today, the stationary cycling business is going to continue to grow very fast,” he said. “I think it’s in a growth category.”

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