Peloton PTON shares continued to slide in Tuesday trading following a report that John Foley would step down as chief executive of the fitness-equipment maker.
The Wall Street Journal said co-founder Foley, 50, would become executive chairman. Barry McCarthy, a former Spotify SPOT and Netflix NFLX chief financial officer, will become president and CEO.
The New York company also plans a cost-cutting and business overhaul, which includes slashing 2,800 jobs.
The move is partly in response to activist investor Blackwells Capital, which in a scathing letter last month demanded that Foley be fired amid falling sales and repeated snafus, including a recall due to the death of a child and a reported production halt due to sluggish demand.
Peloton has denied the report, saying it hasn’t halted all production, just some of it. It also preannounced its quarterly results, which showed that it still added new subscribers in its most recent quarter but not as many as Wall Street analysts had been expecting.
It’s all a significant step down from the pedestal on which analysts, investors and exercise aficionados placed Peloton at the end of 2020. That was when staying at home was the new normal and Americans were splurging for the company’s internet-connected stationary bikes affiliated with the likes of megastar Beyoncé.
Back then, the stock was trading at just under $100 a share. As of Monday’s market close the stock was trading at $29.75, just above its 2019 IPO price.
Now, the theories of how Peloton might survive in a post-pandemic world where people want to physically move when they are exercising has become the Wall Street guessing game of the week. The likes of Amazon (AMZN), Apple (AAPL), Nike (NKE) and even Lululemon (LULU) are being put forward as potential tights-wearing white knights.
What Happened to Peloton?
Pedaling Peloton to investors was always a steep climb for CEO Foley. As far back as 2012, analysts were pooh-poohing former Barnes & Noble e-commerce executive Foley’s ambitious plans of making Peloton the “Netflix for fitness.” They argued that its equipment was too expensive and that instructor-led home workouts were never going to replace peoples' penchant for going to the gym.
Indeed, skepticism remained one of Peloton's bigger challenges when it went public in September 2019. Peloton reported a loss of $245.7 million in 2019 vs. $47.9 million the year before.
And then the pandemic hit, and people got antsy, really antsy. Thanks to a massive spend on advertising and despite an even bigger spend on opening high-end physical retail stores in shopping malls, sales began to surge, along with subscriptions.
In May 2021, Peloton reported strong quarterly results thanks to a surge in connected-fitness revenue. But even then things weren’t looking great for the company, thanks to the recall of its Tread+ and Tread treadmills after a 6-year-old died.
And Peloton’s revenue and number of workouts have been declining progressively since, something that Peloton watchers say may have contributed to Blackwells's recent ask to fire Foley.
On top of announcing Foley will be stepping down, Peloton on Tuesday slashed its full-year financial outlook, saying it now saw fiscal 2022 revenue within a range of $3.7 billion to $3.8 billion, down from a prior range of $4.4 billion to $4.8 billion.
It also said it expected to end the year with about 3 million connected fitness subscribers vs. previous estimates of 3.35 million to 3.45 million.
Could a Shiny Apple Save Peloton?
Fast forward to 2022 and the vultures are circling, with Apple being considered by some as the front-runner to save Peloton from its downward spiral, even as Foley holds a supermajority of the B shares and ultimately controls Peloton's fate.
"We believe Foley leaving the CEO post and moving to executive chair (being replaced by former Spotify and Netflix CFO) sets up a fork in the road path for Peloton in the months ahead," Wedbush Securities analyst Dan Ives wrote in a research note Tuesday.
Ives and other Wall Street analysts believe shareholder pressure will build enough for Peloton to solicit bids from the likes of Apple, Amazon, and Nike, with Apple widely seen as the best fit due to its already popular healthcare/fitness/subscription service and its exceptionally large pile of cash.
"If Peloton tries to go alone ahead, not sell, there are cautionary tales of troubled consumer products in cost cutting mode that have been down this path with Fitbit (GOOGL) and GoPro (GPRO) coming to mind in darker stories."
Apple Maven's Daniel Martins disagrees, pointing out on Tuesday that Apple isn't known for making off-the-cuff acquisitions of companies that aren't in the strongest financial position and do not have the best margins.
More importantly, "...there is substantial risk that Peloton’s best days may have been left behind — more specifically during the lockdown and stay-at-home period of the Covid-19 crisis."
