John Foley, who has led Peloton since its foundation a decade ago, will become executive chair. Photo / AP
Peloton's co-founder is ceding the top job at the fitness bike maker in a shake-up that will cost 2,800 jobs, after a collapse in its market value drew pressure from activist investors and potential bidders.
The company announced on Tuesday morning that Barry McCarthy, the former chief financial officer ofSpotify and Netflix, will replace John Foley as chief executive.
Foley said that his wife, Jill, would step down from running Peloton's apparel business "in the coming months", tacitly addressing one of investors' complaints. William Lynch, a long-term Foley ally, will step back from his role as president to be a non-executive director, while another director with whom Foley worked before Peloton will leave the board.
Foley, who has led the company since its foundation a decade ago, will become executive chair and retain the supervoting stock with which he and other executives control the company.
On a call with investors on Tuesday, Foley acknowledged that he had made "missteps". "To meet market demand we scaled our operations too rapidly and we overinvested in some areas of our business," he said. "We own this. I own this and we're holding ourselves accountable," he added.
Shares in the company jumped 27 per cent to US$37.84 by early afternoon, as analysts said the board shake-up made it more likely that Peloton would feel shareholder pressure to sell the company.
"Foley was the pilot on the Peloton growth plane and him leaving [as chief executive] paints a bleak picture with the main visionary no longer in charge," said analysts at Wedbush Securities, citing Apple, Amazon and Nike among the potential bidders.
Peloton announced sweeping cuts to its workforce and manufacturing ambitions. It said it would reduce corporate positions by 20 per cent and "wind down" a planned US$400 million investment in a 1mn sq ft factory in Ohio.
Foley had only broken ground on the plant in Troy Township in August, promising that it would generate more than 2,000 jobs and give Peloton "a massive strategic lever" to ensure it could meet demand for years to come.
The strategic reversal will cost US$130 million in cash charges and US$80 million in non-cash charges, Peloton said, while cutting US$150 million from this year's capital spending and yielding "at least US$800 million in annual run-rate cost savings".
Severance payments will account for much of the cash outlay. In a memo, Foley told staff who were being laid off that they could keep their Peloton membership for a year.
The company, which went public at a valuation of US$7.7 billion in September 2019, shot to a market capitalisation of nearly US$50 billion by the end of 2020 as lockdowns at the onset of the coronavirus pandemic drove thousands of new customers to sign up for its signature stationary bikes and video classes.
But slowing demand, supply chain challenges and reputational crises including a child's death that led to a recall of its treadmills, hit the group, with its market value collapsing to less than US$8 billion last week.
Over the weekend, the Financial Times reported that Nike and Amazon were separately evaluating bids to buy Peloton. Other candidates are also likely to emerge, potentially including Apple and large private equity buyers, those briefed on the matter said.
Foley is considered a potential block to any deal owing to the company's dual-class shareholder structure that gives its top management veto power on all big decisions. But two days of deal speculation have lifted its valuation above US$12 billion.
Tuesday's announcements came hours after Blackwells Capital, which has a stake of nearly 5 per cent, stepped up its campaign against Peloton by demanding a clear-out of directors and an investigation into possible misconduct.
The activist investor argued that Peloton had been "grossly mismanaged", in a 65-page presentation to the company's board. Blackwells stepped up its critique of Peloton's governance from over a fortnight ago, accusing insiders of enriching themselves by selling more than US$700 million of stock since its IPO.
Jason Aintabi, Blackwells' chief investment officer, responded to the board reshuffle by saying that it did not address Peloton investors' concerns.
"Mr 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 today," Aintabi said.
Blackwells also said it had formally demanded to inspect Peloton's books and records to investigate the conduct of the company's board and management.
Peloton also reported on Tuesday that its revenues grew by 6 per cent to US$1.13 billion in the second quarter, but it fell to a net loss of US$439 million from net income of US$63.6 million a year earlier. It cut its guidance for full-year revenues from the range of US$4.4 billion to US$4.8 billion it gave three months ago to a new target of just US$3.7 billion-US$3.8 billion.
Monthly churn — the number of subscribers leaving Peloton each month — was just 0.79 per cent, however, suggesting its 6.6mn members remained engaged.
The company had rushed out preliminary earnings almost three weeks ahead of schedule on January 20, pointing to revenues for the quarter of US$1.14 billion, at the lower end of its previous guidance of between US$1.1 billion and US$1.2 billion.