Amid a flurry of changes from Peloton—including a new chief executive, new board members and the firing of 2,800 employees—there’s one major thing that has remained exactly the same: John Foley is still in control.
The cofounder, who is now swapping his CEO title for that of executive chairman, still holds the same amount of stock as he did on Monday. Together with other members of the management team and board, including two other cofounders, they control about 80% of the voting power. That means that Foley still remains the biggest obstacle standing in the way of a potential sale and can decline to explore a deal with rumored suitors like Nike, Amazon and Apple.
“It’s their call,” said John Blackledge, an analyst at Cowen & Co., referring to Foley’s team.
During the company’s earnings call on Tuesday morning, Foley indicated that he hoped the changes would help appease investor concerns. The CEO job, which was Foley’s since he started the company a decade ago, went to Barry McCarthy, former CFO of Spotify and Netflix.
“The announcement this morning that we are bringing in a smart, talented, experienced CEO to strengthen our leadership team is one of many things we’re doing to show our commitment that this is not about John Foley or super voting shares,” Foley said. “This is about what’s best for all shareholders, of which I am one.”
He noted that there would be no changes when it came to the voting structure, a move that ensures that he and other insiders at the company continue to control its fate—and could continue to run it as a stand-alone operation.
“The management and board changes, and cost cutting, definitely suggests they plan on being independent for a while longer,” said Adam Crisafulli, founder of Vital Knowledge, a financial news and analysis firm.
“Today’s announcement in our view lowers the probability of a strategic takeover,” Jonathan Komp, an analyst at Baird, wrote in a note to clients.
Peloton has been under pressure to put itself up for sale in recent weeks by activist investor Blackwells Capital, which seems to view the executive shakeup as little more than window dressing. “Peloton CEO John Foley naming himself executive chairman and hiring a new CEO does not address any of Peloton investors’ concerns,” Jason Aintabi, Blackwells’ chief investment officer, said in a statement. The firm is continuing to call for the company’s immediate sale and named more than a dozen potential suitors in a 65-page presentation it published on Tuesday.
Yet, Foley believes that Peloton still has wide vistas of opportunity in front of it and said he was excited to “partner closely” with the new CEO. “I still believe as strongly in this brand and in connected fitness as I did on day one,” Foley said in a note to customers on Tuesday. Peloton currently has about 2.8 million subscribers, a fraction of the 100 million households in the U.S. and abroad that it believes it can add as customers in the coming years.
If Foley sells now, he’d likely have to come to terms with a price that is down significantly from its highs. The company currently has a market capitalization of about $10 billion, down from a peak of $50 billion. His personal fortune, mostly tied up in shares of the company, has plummeted to $500 million from $1.5 billion in the early innings of the pandemic.
There’s also still the question of how desirable Peloton is to suitors. “I don’t see why anybody needs to buy this company,” said Crisafulli. “It’s a notoriously difficult low-margin business with a long upgrade cycle.”
The company generates the bulk of its revenue from the sale of bikes and treadmills, a physical product that requires significant investment in manufacturing and supply chain. It said on Tuesday that it was working to improve the economics of its hardware business, with plans to scrap a new manufacturing plant in Ohio. It will also begin outsourcing more of its warehouse and delivery operations, like tasking third parties with handling 60% of its deliveries, up from 40%.
Those efforts are aimed at improving profitability, after the company posted losses of $439 million on revenue of $1.1 billion in its latest quarter. Peloton has struggled to forecast demand, resulting in a glut of inventory and reports that it has paused production, further fueling investor concerns that the at-home fitness craze will fizzle as Americans emerge from the pandemic.
The brand’s image has been bruised lately, too. Its bikes were featured in not one but two fictional heart attack scenes on TV, plus it has faced criticism over how it handled a recall of its treadmills in the wake of a child’s death and dozens of injuries. Peloton didn’t respond to a request for comment.
Tech companies are already facing antitrust scrutiny. Striking a deal to buy Peloton would invite further probing from regulators. Amazon, for instance, is awaiting clearance for its $8.4 billion acquisition of MGM. Nvidia just called off a $40 billion acquisition of another chipmaker after it was blocked by regulators. The Senate has also been considering legislation that would prevent tech companies from favoring their own products on their platforms.
“The question is: Do you really want the headache right now?” said Crisafulli.
Amazon could use the purchase as an entry into health and fitness, but Peloton likely serves little purpose as a customer acquisition tool. It already has 200 million Prime subscribers and plenty of insights into their buying habits. “Do they need more data? I don’t know that they need more data,” Blackledge said.
Apple has historically shied away from acquisitions, preferring to launch its own products. Nike, another rumored suitor, hasn’t been much interested in hardware. Its most recent acquisition was of a company called NTWRK that makes virtual goods for the metaverse.
Remaining independent has worked out well for companies like Netflix, which faced pressure from activist investor Carl Icahn to merge with a larger technology company in 2012, refused, and went on to become a $175 billion market cap company.
However, the company has more often been compared to GoPro and Fitbit, which also manufacture connected fitness devices, and foundered as stand-alone public companies after encountering growth challenges.
Peloton may come to regret not selling now, said Dan Ives, a Wedbush analyst. “To do this as a stand-alone company, they would face Kilimanjaro-like challenges. If they decide not to sell, bidders could buy it 30% to 40% cheaper with another execution miss.”
