Feb 8, 2022 - Economy

Peloton is bracing to go it alone

Peloton stock price
Data: Yahoo Finance; Chart: Baidi Wang/Axios

Perhaps no company symbolizes the pandemic stock market more than Peloton, which will attempt a fresh start with a leadership change and significant workforce downsizing.

The big picture: Peloton has owned some strategic missteps and weathered a massive stock hit. Now it seems poised to tune out reports of activists and potential acquirers, and is settling in for the long haul as an independent company.

  • Even with today's announced changes, the company still has work to do to convince independent investors of its vision.

Driving the news: Peloton announced that co-founder John Foley would step down from his role as CEO and become executive chair, while former Spotify and Netflix CFO Barry McCarthy will take over as chief executive.

  • It also plans to cut around 2,800 jobs, including about 20% of its corporate workforce.
  • McCarthy's deep experience with content is significant. On the company's investor call this morning, Foley pointed to the new CEO's "deep experience in growing content-dependent digital subscription businesses and doing so profitably."

Between the lines: Investors reacted favorably today. But even with today’s 25% bounce, the stock is still down 49from November 4, when it cautioned that demand for its hardware was slowing faster than expected.

The intrigue: Activist investor Blackwells Capital, which raised eyebrows in late January when it publicly called for a sale of Peloton, seems little satisfied.

  • Hours after Peloton's announcement today, Blackwells said the leadership change “does not address any of Peloton investors’ concerns.” And it reiterated its call for the company to pursue a sale process.
  • It characterized Peloton’s executive change as a “promotion” for Foley, who Blackwells wants out.

How it works: Activist investors take stakes in companies where they feel they can extract quick value.

  • They exert leverage on companies by building significant stakes and pushing for changes, often going public with their demands to gain support from other shareholders.

What's next: While Peloton is a publicly traded company, Foley and the current management team control around 80% of the voting power, giving them ultimate say on whether to entertain a deal with any interested buyer if one were to emerge.

  • But as pressure continues to build, the company still must find a way to sell its story to investors.
  • Wedbush analyst Dan Ives wrote today that while Foley ultimately controls the fate of Peloton, he believes shareholder pressure to explore a sale will continue to build. "The Board clearly has major decisions to make in the days/weeks/months ahead," he wrote.

Management struck a defiant tone on today's call with investors.

  • "To be clear, we believe we have significant growth potential ahead," CFO Jill Woodworth said.
  • "As work from home and hybrid remain prevalent themes that are likely to persist into the future, we expect Connected Fitness will take category share and drive growth of the overall fitness category. Our own attitudinal research, as well as others published recently, has shown that openness to working out at home and connected fitness in particular, is now at levels much higher than they were pre-COVID," she added.
  • Peloton did not respond to a request for further comment.

What to watch: Will investors continue to believe in Peloton's turnaround story, and value the company more than a potential acquirer.

Editor's note: This story has been updated to clarify Peloton’s plan to cut 2,800 jobs, including 20% of its corporate workforce. An earlier version of the story incorrectly implied the 2,800 jobs represented 20% of the corporate workforce.

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