Peloton co-founder steps down as CEO after a rough ride
The co-founder of Peloton is stepping down as chief executive after an extended streak of tumult at the exercise and treadmill company, which is also cutting almost 3,000 jobs.
John Foley first pitched the idea of an interactive exercise bike in 2011, hoping to disrupt the fitness industry. He will give up the CEO position and become executive chair at Peloton Interactive.
Barry McCarthy, who served as chief financial officer at Spotify as well as at Netflix, will take over as CEO, the company said Tuesday.
Peloton has been on a wild ride for the past two years during the pandemic. Company shares surged more than 400% in 2020 amid COVID-19 lockdowns that included the closure of gyms. Nearly all of those gains were wiped out last year as the distribution of vaccines sent many people out of their homes and back into gyms.
This week, there were reports that Amazon or Nike might buy the company, and those who have pushed for the sale of Peloton continued to do so.
Activist investor Blackwells Capital asked again for the company to be sold Tuesday despite the change in leadership.
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Blackwells sent a presentation to Peloton on Monday outlining “the mismanagement of the company by John Foley, the poor governance and board composition and the rationale for immediately commencing a sale process.”
In addition to the leadership shakeup, Peloton also announced Tuesday that it was cutting 2,800 jobs globally, including about 20% of corporate jobs at the New York-based company. The instructors who lead interactive classes for Peloton will not be included in cuts, nor will the content that the company relies on to lure users.
Peloton’s shakeup includes abandoning plans to open its first U.S. factory near Toledo, Ohio, where it planned to begin production in 2023 and employ 2,000 workers. The company broke ground on the $400-million factory last summer after demand for its interactive fitness equipment surged.
The company will also reduce its owned-and-operated warehousing and delivery locations and will instead ramp up its third-party relationships.
Peloton is looking to reduce its planned capital expenditures for this year by about $150 million. The restructuring program is expected to result in about $130 million in cash charges related to severance and other exit and restructuring activities and $80 million in non-cash charges. The majority of the charges will be recorded in fiscal 2022.
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The company also slashed its full-year sales outlook and now expects a range of $3.7 billion to $3.8 billion. That’s down from a prior range of $4.4 billion to $4.8 billion, which it announced last November. It originally had expected $5.4 billion.
Peloton reported a net loss of $439.4 million ($1.39 per share) for its fiscal second quarter, which ended Dec. 31, compared with net income of $63.6 million (18 cents a share) a year earlier. Total revenue increased more than 6% to $1.13 billion.
In a conference call with analysts, Foley acknowledged that mistakes had been made and that the company invested too quickly.
“We own it. I own it, and we are holding ourselves accountable,” Foley said. “That starts today.”
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The company anticipates at least $800 million in annual cost savings once its actions are fully implemented.
Wall Street looked at the shakeup Tuesday as a pivotal moment for Peloton, including the odds of a sale.
“We believe Foley leaving makes it more likely that Peloton ultimately sells the company and the board clearly has major decisions to make in the days/weeks/months ahead,” Wedbush analysts Daniel Ives and John Katsingris wrote.
But a sale is not assured.
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“I think the moves, as a whole, do not signify that Peloton is throwing in the towel. I believe this means they are going to slim down, refocus and stay independent. Investment from outside firms should be on their agenda but not a sale,” said Raj Shah, North America lead for tech, media, and telecom at digital consulting firm Publicis Sapient.
That uncertainty sent shares of Peloton tumbling 7% seconds after the leadership change was announced, with many believing the odds of a sale had diminished.
By the opening bell, however, the company’s shares were rising, with many pointing to the new CEO’s background in finance and the potential for a deal.
“Promoting Barry McCarthy with his eye on the financials makes sense — he’s the type who can objectively look at Peloton’s operations and choose where to invest and where to cut,” said Timothy Hubbard, assistant professor of management at the University of Notre Dame’s Mendoza College of Business.