Peloton’s co-founder is ceding the top job at the fitness bike maker in a shake-up that will cost 2,800 jobs, after a collapse in its market value drew pressure from activist investors and potential bidders.
The company announced on Tuesday morning that Barry McCarthy, the former chief financial officer of Spotify and Netflix, will replace John Foley as chief executive. William Lynch, a long-term ally of Foley, will step back from his role as president to be a non-executive director.
Foley, who has led the company since its foundation a decade ago, will become executive chair and retain the super-voting stock with which he and other executives control the company.
On a call with investors on Tuesday, Foley acknowledged that he had made “missteps”.
“To meet market demand we scaled our operations too rapidly and we overinvested in some areas of our business,” he said. “We own this. I own this and we’re holding ourselves accountable,” he added.
Analysts at Wedbush Securities said the board shake-up made it more likely that Peloton would feel shareholder pressure to sell the company, citing Apple, Amazon and Nike among the potential bidders.
“Foley was the pilot on the Peloton growth plane and him
leaving [as chief executive] paints a bleak picture with the main visionary no longer in charge,” they argued.
Peloton announced sweeping cuts to its workforce and manufacturing ambitions. It said it would reduce corporate positions by 20 per cent and “wind down” a planned $400mn investment in a 1mn sq ft factory in Ohio.
Foley had only broken ground on the plant in Troy Township in August, promising that it would bring more than 2,000 jobs to the area and give Peloton “a massive strategic lever” to ensure it could meet demand for years to come.
The strategic reversal will cost $130mn in cash charges and $80mn in non-cash charges, Peloton said, while cutting $150mn from this year’s capital spending and yielding “at least $800mn in annual run-rate cost savings”.
The company, which went public at a valuation of $7.7bn in September 2019, shot to a market capitalisation of nearly $50bn by the end of 2020, as lockdowns at the onset of the coronavirus pandemic drove thousands of new customers to sign up for its signature stationary bikes and video classes.
But slowing demand, supply chain challenges and reputational crises including a child’s death that led to a recall of its treadmills, hit the group, with its market value collapsing to less than $8bn last week.
Over the weekend, the Financial Times reported that Nike and Amazon were separately evaluating bids to buy Peloton. Other candidates are also likely to emerge, potentially including Apple and large private equity buyers, those briefed on the matter said.
Foley was considered a potential block to any deal, owing to the company’s dual-class shareholder structure, which gives its top management veto power on all big decisions.
Peloton’s shares rose 21 per cent on Monday on the reports of bid interest, but are still more than 80 per cent below their peak.
Tuesday’s announcements came hours after Blackwells Capital, which has a stake of nearly 5 per cent, stepped up its campaign against Peloton by demanding a clear-out of directors and an investigation into possible misconduct.
The activist investor argued that Peloton had been “grossly mismanaged”, in a 65-page presentation to the company’s board. Blackwells stepped up its critique of Peloton’s governance from over a fortnight ago, accusing insiders of enriching themselves by selling more than $700mn of stock since its IPO.
Jason Aintabi, Blackwells’ chief investment officer, responded to the board reshuffle by saying that it did not address Peloton investors’ concerns.
“Mr Foley has proven he is not suited to lead Peloton, whether as CEO or executive chair, and he should not be hand-picking directors, as he appears to have done today,” Aintabi said.
Blackwells also said that it had formally demanded to inspect Peloton’s books and records to investigate the conduct of the company’s board and management.
Peloton also reported on Tuesday that its revenues grew by 6 per cent to $1.13bn in the second quarter, but it fell to a net loss of $439mn from net income of $63.6mn a year earlier. It now expects full-year revenues of just $3.7bn-$3.8bn, compared to its guidance three months ago that the figure would be $4.4bn-$4.8bn.
Monthly churn — the number of subscribers leaving Peloton each month — was just 0.79 per cent, suggesting its 6.6mn members remained enthused, however.
The company had rushed out preliminary earnings almost three weeks ahead of schedule on January 20, pointing to revenues for the quarter of $1.14bn, at the lower end of its previous guidance of between $1.1bn and $1.2bn.