Peloton came out on top in 2020. Its own supply chain concerns had posed a challenge, but these were only side consequences of the company’s meteoric rise. It just couldn’t keep up with demand, which is one of the better difficulties for a growing company to have. As P.T. Barnum may or may not have ever stated, always leave them wanting more.
Before most of us knew anything about emerging coronaviruses, the linked fitness company had already gained a cultish following in different affluent groups. The epidemic, on the other hand, propelled Peloton’s popularity beyond what anyone could have imagined. Gyms all across the globe started to close, and with everyone trapped indoors, home exercise became a viable option. Peloton was a success because it provided greater connectivity in a socially disconnected environment.
Peloton’s stock rose from roughly $30 at the start of 2020 to over $160 in the last days of the year, thanks to investor interest. Things took a turn for the worst in 2021, with Peloton dropping to roughly $36 by the end of the year.
The downward trend has maintained. Things at Peloton struck rock bottom last week. The firm seems to be on high alert as demand continues to erode when gyms reopen. Peloton’s top brass seem to have perceived the epidemic as less of a once-in-a-100-year occurrence and more of the start of something bigger, with hundreds of millions spent on manufacturing to match a surge in demand.
Peloton lost momentum once it was revealed that the business had hired McKinsey to help with restructuring and layoffs. Further claims, which CEO John Foley largely rejected, stated the business was stopping manufacturing across its treadmill and stationary bike lines, which would be terrible news for the company’s worth.
Jason Aintabi, the chief investment officer of activist investor Blackwells Capital, wrote to Peloton’s board of directors this morning, demanding Foley’s immediate dismissal and urging the board to consider selling the company.
We think the pandemic presented Peloton with a once-in-a-lifetime opportunity to accelerate consumer adoption of its category-defining products, therefore driving company success and shareholder value. The stock is currently trading below the IPO price and is down more than 80% from its peak, indicating that the Company, its management, and the Board of Directors have wasted this chance.
Surprisingly, the Company is in a worse financial position now than it was before the epidemic, with high fixed expenses, excess inventory, a stale strategy, dissatisfied staff, and thousands of angry stockholders. And it’s no surprise, considering that Peloton has underperformed every other Nasdaq 100 firm over the previous 12 months.
“Mr. Foley’s ride is finished,” the letter adds. This Board must now create a new course for Peloton on its own.”
According to The Wall Street Journal, Blackwells, which purchased a minority investment in Peloton for less than 5%, alleges a laundry list of “leadership failings,” highlighting Peloton’s obvious roller coaster ride since the epidemic started. Foley’s handling of a big product recall after the death of a young child, moving his wife to a senior position inside the firm, and substantial expenditures in additional production capacity, which were eventually closed due to declining demand, are among the items on the list.
Foley broke his pre-earnings “silent time” last week to address some of the rumours swirling about the firm, claiming that claims that it was suspending all manufacturing were inaccurate. He did, however, affirm that production and staffing modifications were unavoidable.
The executive stated, “In the past, we’ve declared layoffs would be the very last lever we’d ever aspire to pull.” “However, with the greatest care and compassion, we must now reassess our organisation structure and team size.” And, as part of our attempts to make our company more adaptable, we’re still examining all possibilities.”
Foley chastised press coverage based on a series of leaks, calling it “incomplete, out of context, and not indicative of Peloton’s plan,” and promising to provide additional details on the company’s approach during the company’s February earnings call.
For its part, Blackwells doesn’t pull any punches in the letter.
“We understand that Mr. Foley sees Peloton as ‘his’ business, and that you, the Company’s directors, are ‘his’ Board,” Aintabi writes. “By virtue of his standing as founder, he has disproportionate influence and voting authority.” Some of you may feel bound to follow Mr. Foley’s desires since you’ve known him for a long time. However, the legal profession and the stock market are expecting more. You’re not here to uphold Mr. Foley’s honour or pride. As directors, your job isn’t to save him from shame or to absolve him of culpability.”
Peloton isn’t in a particularly unusual circumstance. Other corporations that had large gains during the pandemic have seen their stock prices return to pre-pandemic levels. Zoom, the popular video chat service that rose to prominence during COVID, has lost virtually all of its recent gains. Zoom was valued as much as $150 per share by late March 2020, up from the mid $60s at the start of the year. It climbed to over $560 before plummeting to roughly $144 as of today.
Not all of the news is negative. According to Yahoo Finance, Peloton hit rock bottom at $23.25 a share, but has subsequently risen to more than $27. (at the time of writing). From a financial standpoint, the company’s intention to slash expenditures is great news. And its recent hardware frenzy has undoubtedly resulted in more motorcycles on the market. Perhaps those new subscribers will keep their memberships, allowing the corporation to continue to generate high-margin software sales while cutting manpower and other costs.
Peloton, on the other hand, did not expect to be cutting to profitability only a few quarters ago.
Today, the corporation is valued at little around $9 billion. It is now available at a much lower price than it was a year ago. The number of corporations that could afford to spend tens of billions for Peloton was small; the number of companies that could afford to pay tens of billions for Peloton was much less.
What is the name of the person who is on the list? Apple, possibly, but Peloton is now mostly an Android hardware store. So, how about Google? Most likely not. Microsoft isn’t interested, Amazon isn’t interested, and our list is growing short. Because it isn’t a metaverse firm, Meta is out, and what gym has the means to acquire Peloton’s scale? If expenses can be reduced enough, private equity may be able to boost the company’s upside potential, but that seems to be a reach.
Given the value that Peloton has kept even after its steep selloff, it does not seem that a sale is imminent. That implies the corporation will almost certainly have to adjust its own engine. If investors continue to seek reparations in the form of executive blood, keeping its CEO throughout that process may become untenable.
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