Peloton is replacing CEO John Foley and cutting about 20% of its workforce to help reinvigorate the fitness company.
Barry McCarthy, the former chief financial officer of Spotify and Netflix, will become its CEO and chairman starting Wednesday (9). Foley wrote in a public statement that the appointment is the “culmination of a months-long succession plan” he has been working on with the board.
Peloton also announced it will lay off about 2,800 employees, including about 20% of its corporate positions. This was a move Foley hinted at a few weeks ago.
The company is also reducing the number of warehouses it owns and operates and expanding delivery contracts with third-party vendors, which will help the company save $800 million in annual costs.
“This restructuring program is the result of diligent planning to address key areas of the business and realign our operations so that we can execute our growth opportunity with efficiency and discipline,” the company said in a press release.
The layoffs began last Tuesday and affected employees will receive a 1-year Peloton digital subscription as part of their severance.
Peloton also noted that it is “curtailing development” of its first U.S. factory in Ohio, announced in May 2021, helping to save $60 million.
He noted that instructors and content “will not be impacted by the announced initiatives.”
“I love Peloton,” Foley said on the earnings call, but he acknowledged the company had made “mistakes,” including scaling its operations “too quickly” and overinvesting in some areas of the business. “We own it. I own it and we’re holding ourselves accountable,” he said.
Peloton’s board of directors is also undergoing a shakeup, including the addition of two new directors: Angel Mendez, a former Cisco executive, and Jonathan Mildenhall, a former Airbnb chief marketing officer. Erik Blachford, who has served as a director since 2015, is stepping down from the board.
The changes indicate that Peloton wants to remain independent rather than sell itself to a suitor — at least for now. Shares surged 20% on Monday after reports that Amazon and Nike were exploring bids for the company and Wall Street has been buzzing that Apple could also be a potential suitor.
Peloton shares are down more than 80% from their January 2021 high. They have come under renewed pressure in recent weeks following a report that the company had stopped making new bikes and treadmills.
Blackwells Capital, an activist investor that owns less than 5% of Peloton, recently said it has “grave concerns” about Peloton’s performance and is calling on the board to fire Foley and explore a sale.
In a statement Tuesday, Blackwells said the changes do not go far enough, arguing that Foley “has proven he is unfit to lead Peloton, whether as CEO or executive chairman, and he should not handpick directors as he appears to have done on Tuesday.”
Blackwells said it would continue to push for a “process of strategic alternatives to maximize value for the benefit of all shareholders.”
In a note to investors on Tuesday, Neil Saunders, managing director of GlobalData, said Peloton is “now a business in crisis mode.” The changes are the “latest in a long series of maneuvers as it strives to get the business back on track.”
“Peloton has spent vast amounts of money on stores, factories, warehouses and other facilities to meet demand that is now unlikely to materialize. New CEO Barry McCarthy’s first step should be to cut costs to right-size the business,” Saunders said, adding that a sale “would put Peloton on a much more secure footing.”
Peloton reported earnings Tuesday, cutting its fiscal 2022 revenue to $3.7 billion to $3.8 billion — a sharp drop from its previously forecast range of $4.4 billion to $4.8 billion. Shares were up about 30% in midday trading Tuesday.
