Peloton’s future is uncertain after a swift fall from pandemic stardom. – The New York Times
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The chief executive stepped down as a glut of unsold machines, negative TV portrayals, activist investors and a recall plagued the fitness company.
Erin Griffith and
John Foley, the chief executive and a founder of Peloton, could barely contain his excitement.
It was May 2020, just a couple of months into the pandemic’s shelter-in-place orders. With gyms locked down, people had started panic-buying Peloton’s $2,245 internet-connected exercise bikes for their homes. Revenue from the systems soared 66 percent from a year earlier, and more than one million people had signed up for the company’s online exercise classes. A backlog of orders piled up.
“It’s kind of awesome, obviously, knowing that we can provide this service to communities and families,” Mr. Foley said in an interview at the time. “The demand is through the roof.”
It was a moment of triumph — and one that led to Peloton’s downfall. To meet that surging demand, the New York company aggressively ramped up production. When orders waned as gyms and fitness studios reopened, it suddenly had a glut of machines. In recent months, Peloton temporarily halted production of its bikes and treadmills. Its losses deepened.
Those issues — compounded by a recall of its treadmills, the appearance of an activist investor and a spate of negative television portrayals — culminated on Tuesday when Mr. Foley, 51, announced that he would step down as chief executive and become executive chairman. Peloton said it was restructuring itself, laying off 2,800 workers, or 20 percent of its work force. Barry McCarthy, 68, a former chief financial officer of Spotify, was named chief executive and president.
The company also said it lost $439 million in its most recent quarter, as sales grew just 6 percent from a year earlier. Peloton lowered its full-year forecasts for revenue, subscriptions and profitability. The company also pulled the plug on a planned factory in Ohio.
In a call with analysts on Tuesday, Mr. Foley was contrite. “We have made missteps along the way,” he said. “We own this. I own this, and we are holding ourselves accountable. That starts today.”
It was a stunning turn for a company that had been at the head of a class of high-flying “pandemic winners.” These companies — which also include Zoom, Netflix and Etsy — benefited from surging demand at the start of the pandemic but are having to adjust as many communities return to a version of normal.
“It’s a classic case of Covid bump and Covid reality,” Randal Konik, an equities analyst at Jefferies, said of Peloton. “The question from here is going to be, ‘Is this the appropriate valuation for a slower-growth company that still loses money?’”
Whether Peloton’s actions on Tuesday will be enough for it to survive this crisis is unclear. The company’s stock skyrocketed 25 percent after it announced its new chief executive and the layoffs, in a sign that investors may be willing to give it the benefit of the doubt.
But Blackwells Capital, an activist investment firm that has pressured Peloton to sell itself, has publicly urged the company to consider Amazon, Nike and Google as suitors. Peloton, which is working with advisers, is not running a formal sale process, said two people with knowledge of the situation. Amazon has explored buying Peloton, one person said, though no formal deal talks or offer has occurred. Amazon declined to comment.
Mr. Foley and other insiders control a majority of Peloton’s shares, giving them veto power over any sale. Peloton said on Tuesday that it had no plans to make changes to its share structure.
Blackwells, which has a stake of less than 5 percent in Peloton, published a letter saying the company’s latest moves were insufficient. The actions “do not address any of Peloton investors’ concerns,” the firm said, reiterating its call for a sale. Blackwells declined to comment further.
From its beginning, Peloton has faced a bumpy trajectory. When Mr. Foley, a former Barnes & Noble executive, started the company in 2012, he struggled to convince investors of his vision for streaming workouts in homes. He met with hundreds of investors before resorting to crowdfunding to raise money for the company.
Peloton ultimately got funding and developed its internet-connected bikes. Despite the high cost, they developed a cultlike devotion among fans, turning Peloton’s spin instructors into celebrities. Online communities around the classes also flourished.
Yet Peloton rarely made money. Its 2019 initial public offering, typically a moment of celebration for a start-up, was marred by a rocky reception for unprofitable start-ups entering the market. Peloton’s stock fell on its first day of trading, which Mr. Foley called “slightly disappointing.”
When the pandemic hit and demand for Peloton’s bikes surged, the company apologized for long delays in delivering orders. Last April, Peloton spent $420 million to buy Precor, an exercise equipment maker, to expand its U.S. manufacturing.
But some customers, tired of waiting, turned to competitors. Others skipped the expensive hardware and opted for Peloton’s digital-only subscription, which provides access to streaming workout classes. And when gyms and boutique fitness studios reopened, demand for Peloton products slid.
There were other missteps. In May, Peloton said a child had died in an accident involving one of its treadmills. The Consumer Product Safety Commission asked Peloton to recall its Tread+ machines, warning that dozens of injuries had been linked to the product. Mr. Foley initially fought the recall, then relented, saying he had “made a mistake.”
Then Mr. Big, a character in a “Sex and the City” revival show, died after working out on a Peloton, sending the company’s share price down. Peloton responded by criticizing the fictional character’s lifestyle and working with the actor, Chris Noth, on a Peloton ad. It then pulled the spot after Mr. Noth was accused of sexual assault. (Mr. Noth has denied the accusations.) Soon after, Mike Wagner, a character on the show “Billions,” survived a heart attack on his Peloton bike.
Last month, CNBC reported that Peloton had overestimated demand for its bikes and treadmills and planned to temporarily halt production. The company’s share price plunged further. Mr. Foley acknowledged the error, announcing in a letter to shareholders that Peloton was “resetting our production levels for sustainable growth.”
Blackwells soon called for Mr. Foley’s resignation. “Remarkably, the company is on worse footing today than it was prior to the pandemic, with high fixed costs, excessive inventory, a listless strategy, dispirited employees and thousands of disgruntled shareholders,” the firm wrote to Peloton’s board last month.
By then, Peloton’s stock price had fallen 80 percent from its peak in January 2021. Wall Street began speculating that the company could be an acquisition target.
Over the last few months, Peloton started looking for a new chief executive, Mr. Foley said on Tuesday. He said he would work closely with Mr. McCarthy, who previously worked alongside founders as a senior executive at Netflix and Spotify. Mr. McCarthy, who did not speak on the analyst call, plans to move to New York from California.
Peloton plans to save at least $800 million annually by scouring staffing levels, marketing, real estate, software, outside services and more, Jill Woodworth, the company’s chief financial officer, added on the call.
“Every cost bucket is under scrutiny,” she said, noting that the “significant restructuring” could also dent Peloton sales.
Peloton also announced two board members: Angel Mendez, who previously worked as executive vice president and chief operating officer of Here Technologies and as a senior executive at Cisco Systems, and Jonathan Mildenhall, a co-founder of TwentyFirstCenturyBrand. Erik Blachford, a director since 2015, will step down. William Lynch, Peloton’s president, also stepped down.
“This has been a humbling time for Peloton,” Mr. Foley wrote in a letter to shareholders.
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