Peloton has revealed it will cut 2,800 jobs around the world and that co-founder and CEO John Foley is likely to step down.
The company has posted net losses of $439.4 million for the most recent quarter, which means around 20 percent of its corporate positions will be cut, as well as reducing spending.
A statement from Mr. Foley, who will remain executive chair, said: “Peloton is at an important juncture, and we are taking decisive steps. Our focus is on building on the already amazing Peloton Member experience while optimizing our organization to deliver profitable growth,”
“With today’s announcements, we are taking action to ensure Peloton capitalizes on the large, long-term Connected Fitness opportunity.
“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 against our growth opportunity with efficiency and discipline.”
The changes are designed to improve the economics of the company’s hardware.
It will wind down the development of its Peloton Output Park (POP) manufacturing plant in Ohio, which was set to create 2,000 jobs.
This is set to save $60 million in “restructuring capital expenditures.”
It will also cut spending by reducing its owned and operated warehousing and delivery footprint and scaling back third-party relationships.
The job cuts will be across “nearly all” of the companies business operations with the aim to “streamline reporting structures and create clearer lines of accountability.”
Mr. Foley added: “These decisions, particularly those related to our impacted Peloton team members, were not taken lightly.
“We greatly value the contributions of our talented colleagues and are committed to supporting impacted team members in their transitions. We thank our global team members for their focus and dedication through this process.”
A regulatory filing says Mr. McCarthy will get a $1 million basic salary and a stock option grant to purchase eight million shares of the company’s Class A common stock.
Reuters reported Foley has drawn the wrath of activist investor Blackwell’s Capital as the company has struggled to maintain the rapid growth that brought its valuation over $52 billion in early 2021. Since then, the stock has dropped roughly 80 percent.
The investment firm called for his removal and even urged the company to sell itself, blaming the stock’s underperformance to “gross mismanagement”, Foley’s poor decision making and a lack of credibility.
In response to the announcement on Tuesday, February 8, Blackwells said the moves, which included the appointment of two directors to the board, did not address investors’ concerns.
Jason Aintabi, Blackwells’ chief investment officer, said: “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
According to media reports, Peloton has drawn interest from potential purchasers such as Amazon and Nike.
But Analysts believe the firm will be tough to acquire because it has two classes of stock, essentially allowing insiders to control it.
Shares surged 28 percent in midday trading on Tuesday as the company reassured investors on a call that the benefits of the restructuring and pricing changes will be visible in the second half of fiscal 2022.
Louis Navellier, chief investment officer for Navellier & Associates, said: “Wall Street likes the new Peloton CEO so the stock is up again today anticipating that the new CEO will streamline the company and cut any waste.”
During the COVID-19 lockdowns, Peloton’s sales soared, with many people buying up home workout equipment.
However, as immunization rates rose, gyms reopened, and competitors offered competitive products, the profits began to tumble.
The company responded by reducing the prices of its bikes, but this was insufficient to halt the downward trend.
The company posted a larger-than-expected quarterly loss and cut its full-year revenue projection, citing changes in demand brought on by the reopening of economies as the reason for the lower expectation.
Peloton will wind down the expansion of its planned factory in Ohio, where it was set to invest about $400 million and add more than 2,000 jobs over the next few years.