After a long period of turmoil at the interactive treadmill and exercise bike company, Peloton’s co-founder has resigned as chief executive.
John Foley was the first to pitch the idea for Peloton, in 2011 as a way to disrupt the industry. He will step down as CEO and take over the executive chair of Peloton Interactive Inc. Nearly 3,000 employees are also being eliminated by the company.
The company announced Tuesday that Barry McCarthy, who was both the CFO of Spotify and Netflix, will be taking over as CEO.
On Tuesday, shares surged by more than 30% in midday trading despite Peloton reporting a large loss for the fiscal second quarter and reducing its annual outlook on sales and subscriptions.
Peloton has had a wild ride over the last two years due to the pandemic. With COVID-19 lockdowns affecting gyms, company shares soared by more than 400% in 2020. Nearly all those gains were erased last year when vaccine distribution sent many people back to their homes.
Peloton’s initial success created competition. Companies began to take away customers by selling cheaper exercise equipment and bicycles. Peloton’s greatest draw was once again virtual classes offered by high-end gyms. Peloton continued to produce its products despite slowing demand.
Peloton doesn’t have a bad product. In a Tuesday note, Neil Saunders, GlobalData Retail’s managing director, stated that the problem is not simply that it has a bad product. “The problem lies in hubris and poor judgment. Peloton mistakenly believed that the pandemic would cause demand to continue rising.
Foley admitted to analysts that the company had grown too fast and overinvested certain areas in a conference call on Tuesday.
“We own it. Foley said that he owns it and will hold himself accountable. “That begins today.”
Peloton had to correct previous mistakes. Peloton stopped production of its Tread+ treadmills in May after recalling 125,000 within a month of denying that they were dangerous. One of the treadmills was responsible for the death a child and others caused 29 injuries. Due to slower revenue growth, the company reduced the price of its main stationary bicycle by $400 last August.
Peloton was also embroiled in a marketing disaster last month. The stationary bike was featured in the “Sex and the City,” episode 1 of the spinoff “And Just Like That,” but it wasn’t in a flattering light. After a Peloton ride, Mr. Big died. According to reports, the company knew about the product placement, but not the plotline. This left it scrambling for ways to address the negative attention.
Last week, reports surfaced that Nike or Amazon might purchase the company. Peloton’s supporters continued to push for its sale this week. Blackwells Capital, an activist investor, asked for Peloton to be sold again despite John Foley’s mismanagement, poor governance, and board composition. This was the reason for Peloton to immediately begin a sale process.
However, a sale cannot be guaranteed.
“I don’t think that the movements, taken as a group, are indicative of Peloton throwing in the towel. Raj Shah, North America’s lead for tech, media and telecom at digital consultancy firm Publicis Sapient, said that this indicates they will slim down, refocus and remain independent.
Others believe the change-up makes a sale more likely: Wedbush analysts Daniel Ives, John Katsingris wrote that Foley’s departure “makes it more likely that Peloton eventually sells the company and that the board clearly has major decision to make in days, weeks, and months ahead.”
Peloton also announced on Tuesday that it would be cutting 2,800 jobs. This includes approximately 20% of corporate jobs in New York City. Peloton’s instructors will not be affected by the cuts. Neither will the content used to attract users.
Peloton announced that it is closing down development of its Peloton Output Park, Ohio. Peloton will reduce the number of its own and operated warehousing locations and delivery areas and instead increase its third-party relationships.
Peloton plans to cut its capital expenditures by approximately $150 million this year. Peloton expects to incur approximately $130 million in cash costs related to restructuring and other exit activities, and $80 million in charges that are not in cash. Most of these charges will be filed in fiscal 2022.
The company also reduced its full-year sales outlook. It now anticipates that it will be able to sell between $3.7 billion and $3.8 billion. This is down from the $4.4 billion to $4.8 miliarde range it previously announced in November. It had originally expected $5.4 billion.
Peloton expects to finish the year with approximately 3 million connected fitness subscribers. This is a significant increase from previous estimates of 3.35million to 3.45m.
Peloton posted a net loss in fiscal second quarter at $439.4million, or $1.39 per shares. This compares with a net income of $63.6million, or 18cs per share, one year ago. The total revenue increased by more than 6%, to $1.13 trillion. According to FactSet, analysts had predicted $1.24 per share for sales of $1.14 trillion.
Once all of its actions are implemented, the company expects to save at least $800,000,000 annually in costs.
