Peloton (PTON) Posts Loss and Cuts Full-Year Outlook

Jobs and leadership shake-up underway at exercise equipment and media company

By
Nathan Reiff
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Nathan Reiff has been writing expert articles and news about financial topics such as investing and trading, cryptocurrency, ETFs, and alternative investments on Investopedia since 2016.
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Published February 08, 2022

Peloton Interactive, Inc. (PTON) reported plans for a significant restructuring of its business, including executive leadership transitions, when it announced earnings for Q2 FY 2022 on Feb. 8, 2022. The company's second fiscal quarter ended Dec. 31, 2021. Chief executive officer (CEO) John Foley will reportedly step down as the company eliminates 2,800 jobs. In the announcement, Foley said that Peloton is restructuring to position itself for "sustainable growth" and "consistent profitability" in the future.

Key Takeaways

  • Exercise equipment and media company Peloton will undergo a restructuring involving an executive leadership transition and elimination of 20% of its workforce.
  • CEO John Foley will step down and be replaced by Spotify veteran Barry McCarthy.
  • The company has faced pressure to restructure and interest from potential buyers looking to increase long-term profitability and growth prospects.
  • Investors responded enthusiastically to the news, sending Peloton shares surging by more than 25%.

Peloton saw a significant net loss of $0.4 billion for Q2 FY 2022, a shift from net income of $63.6 million for the prior-year quarter. The company saw revenue from is connected fitness segment—about 70% of its total business—fall by 8% year over year (YOY). Peloton sharply cut FY 2022 revenue outlook, dropping to a range of $3.7 billion to $3.8 billion from the previous range of $4.4 billion to $4.8 billion.

Peloton's subscription revenue surged by 73% YOY for the quarter, reinforcing investor optimism about the company following news of its restructuring. News that former Spotify Technology S.A. (SPOT) CFO Barry McCarthy, a seasoned Silicon Valley executive, will step in as CEO has also helped to bolster confidence. The executive transition and dramatic right-sizing, which will see roughly 20% of Peloton's corporate workforce cut, comes following Peloton's mixed efforts at balancing production with demand. The company invested $400 million in U.S. production in May 2021 but then saw demand slow and eventually reportedly halted production of its treadmill and bike products.

Investors See Opportunity

The company has also seen reported takeover interest from potential buyers including Nike, Inc. (NKE), Amazon.com, Inc. (AMZN), and others. Activist investor Blackwells Capital has called for Foley's ouster from Peloton and for the company to be sold. The exercise equipment and media company could prove a natural fit in the offerings of a variety of retailers, tech giants, and streaming services companies.

Peloton's shares have spiked immediately following the announcement, climbing by more than 25% so far on Feb. 8. The company's stock has plummeted in the past year up to this point, shedding more than three-quarters of its value since Feb. 8, 2021. Investors seem to have responded enthusiastically to news of Peloton's upcoming overhaul.

Article Sources
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  1. CNBC. "Peloton Posts Loss, Slashes Its Full-Year Revenue Outlook as Founder Steps Down From CEO Post."

  2. Peloton Interactive Inc. "Peloton Announces Comprehensive Program to Reduce Costs and Drive Growth, Profitability, and Free Cash Flow."

  3. Peloton Interactive Inc. "Second Quarter FY 2022 Highlights."

  4. Techcrunch. "Peloton CEO Steps Down as the Company Cuts 2,800 Jobs."

  5. Bloomberg. "Peloton Soars After Reports of Takeover Interest."

  6. Trading View. "Price Chart: PTON."

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