Peloton is begging for a takeover

Time for a shakeup.
Time for a shakeup.
Image: Reuters/Carlo Allegri
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Peloton announced a major corporate shake-up today (Feb. 8), as investors turn up the pressure to force a sale.

Barry McCarthy, a former CFO at Spotify and Netflix, will replace CEO and cofounder John Foley, who will become executive chair of the board of directors. The company also plans to lay off roughly 2,800 employees, representing 20% of its corporate workforce. “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.

Reports over the weekend suggested the likes of Nike and Amazon are circling the carcass of a pandemic star, whose stock has fallen precipitously since gyms reopened. The corporate reshuffle looks like the board’s first step towards an eventual takeover.

Poor performance brings Foley’s leadership into question

The price of Peloton shares dropped by 35% in early November when the company cut its annual revenue forecast by as much as $1 billion, and has continued to slide as the firm battles additional PR disasters.

The company’s poor performance brought CEO John Foley’s leadership into question, and on Jan. 24, an activist investor with Blackwells Capital called on Peloton to fire its co-founder and pursue a sale.

Blackwells intensified its criticism of Foley in a presentation (pdf) published yesterday (Feb. 7), arguing the executive continued to express optimism about Peloton’s growth throughout 2021 even as the company saw revenue and users decline. As a result, shareholders have suffered: Peloton stock fell 76% in 2021, worse than any other company listed on the Nasdaq exchange.

McCarthy touted his understanding of content-driven subscription models in an interview with the Wall Street Journal, which could valuable to a company that has had more luck selling subscriptions than bikes in the past year. Revenue from Peloton’s Connected Fitness unit, which sells products including the $1,500 exercise bike, declined by 8% in the quarter ending Dec. 31, the company reported yesterday. The average number of monthly workouts also continued to decline after peaking in March 2021.

At the same time, Peloton’s subscriptions climbed last quarter as revenue grew by 73% from the previous year, to $337.5 million. Subscriptions now represent 30% of the company’s total revenue. Blackwell Capital investors cited Peloton’s recurring subscription-based revenue model as an asset for the company should it seek a sale.

Amazon is rumored to be in talks to buy Peloton

Disney, Apple, and Nike have all been floated as potential buyers for Peloton, whose value has fallen from $50 billion to around $8 billion in recent months. Peloton shares rose by 30% last week when the Wall Street Journal reported retailer Amazon has been speaking to representatives with the company about a potential sale.

Any potential buyer that does step forward will likely need sign-off from Foley, who has roughly 80% voting control along with other insiders at the company.