Stock Forecast: Peloton CEO Steps Down as Company Slashes Financial Outlook, Cuts 2,800 Jobs

Peloton exercise service
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Peloton made a series of announcements during its earnings release Feb. 8, as CEO John Foley will step down, it will cut 2,800 global positions — approximately 20% of the company’s corporate positions — and it slashed its revenue outlook for the full year.

The stock was up 21% mid-morning on Feb. 8, following the news.

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Former chief financial officer of Spotify and Netflix Barry McCarthy will replace Foley, according to a press release.

“It is with great pride in what the Peloton team has built, and a recognition for where we need to go, that I will be transitioning from my CEO role and will assume the role of Executive Chair of the Board of Directors. While I will always be Peloton’s most loyal Member and biggest supporter, I couldn’t think of a better CEO for Peloton’s next stage of growth than Barry McCarthy,” Foley said in a letter to shareholders.  

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The move comes following Blackwells Capital CIO Jason Aintabi’s open letter  to the Board on January 24, wrote it has “grave concerns” about Peloton’s direction and performance, as GOBankingRates previously reported.

Aintabi said that while the pandemic offered Peloton a tremendous and unexpected opportunity to accelerate consumer adoption of its category-defining products and drive performance of the business and value for shareholders,  “with the stock now trading below the IPO price, and down more than 80% from its high, it is clear that the company, the executives and the Board have squandered this opportunity.”

In a separate announcement, Pelton announced a series of steps it is taking “to position the business for long-term growth while establishing a clear path to consistent profitability and sustainable free cash flow.”

The company said that once these actions are fully implemented, it expects to achieve at least $800 million of annual run-rate cost savings through operating expense efficiencies and significant margin improvement in its Connected Fitness category.

Related: Following Nike, Amazon Rumors, Acquiring Peloton Would be ‘Strategic Coup’ for Apple, Analyst Says

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Wedbush Securities analyst Dan Ives wrote in a note sent to GOBankingRates that Foley leaving the CEO post and moving to executive chair “sets up a fork in the road path for Peloton in the months ahead.”

“While Foley has supermajority B shares and ultimately controls the fate of Peloton, we believe shareholder pressure will build to solicit bids and sell Peloton to a strategic player with potential bidders Apple, Amazon, and Nike likely in the fold,” Ives wrote.  “While Peloton will likely spin a path of restructuring and growth ahead with the new CEO and “rip the band-aid off earnings/guidance” after the bell, the reality is that Foley was the pilot on the Peloton growth plane and him leaving paints a bleak picture with the main visionary no longer in charge. In a nutshell, we believe Foley leaving makes it more likely that Peloton ultimately sells the company and the Board clearly has major decisions to make in the days/weeks/months ahead. If a bidding process begins, we view Apple as the likely acquirer due to the clear strategic fit with its healthcare/fitness subscription initiatives while Amazon and Nike among others could be potential bidders in the mix.”

For the three months ended Dec. 31, Peloton reported net loss of $439.4 million versus net income of $63.6 million in the same period last year, according to the letter to shareholders.

In terms of its financial outlook, the company expects approximately $950 million to $1 billion of revenue in Q3 and $3.7 billion to $3.8 billion for the full year, according to the letter.

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“Our forecast extrapolates traffic trends from the first half of the year into the second and incorporates assumed demand impacts from reduced sales and marketing spend and the implementation of delivery and set-up surcharges on January 31st,” it said.

This is down from a prior range of $4.4 billion to $4.8 billion, according to CNBC.

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About the Author

Yaël Bizouati-Kennedy is a full-time financial journalist and has written for several publications, including Dow Jones, The Financial Times Group, Bloomberg and Business Insider. She also worked as a vice president/senior content writer for major NYC-based financial companies, including New York Life and MSCI. Yaël is now freelancing and most recently, she co-authored  the book “Blockchain for Medical Research: Accelerating Trust in Healthcare,” with Dr. Sean Manion. (CRC Press, April 2020) She holds two master’s degrees, including one in Journalism from New York University and one in Russian Studies from Université Toulouse-Jean Jaurès, France.

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