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Peloton chief executive Barry McCarthy is stepping down from his role as the exercise-bike maker launches a restructuring plan that will cut 15 per cent of its workforce.
The former Netflix and Spotify executive succeeded former chief and founder John Foley in 2022. McCarthy, who was lured out of retirement with a pay package initially valued at $168mn, was tasked with turning around the connected-fitness company after it had burnt through cash, leaving it “thinly capitalised” for its size.
Peloton’s share price never regained its pandemic-era highs, leaving the equity awards that made up most of McCarthy’s pay package worth a fraction of its initial valuation. Just months into his role as chief, McCarthy faced pressure from activist investors over corporate governance.
Despite a series of earlier job losses and cost cuts in recent years, Peloton’s market capitalisation has fallen to about $1.2bn from an early-2021 peak of almost $50bn. The group was valued at $8.1bn at the time of its initial public offering in September 2019.
Sales at the New York-based company surged during Covid-19 lockdowns, but it subsequently struggled as easing pandemic restrictions allowed people to resume in-person activities at gyms and fitness studios.
“We are still dealing with the whiplash, the normalising that occurred post-Covid,” said interim co-chief Chris Bruzzo on a call with investors on Thursday as the company reported its latest results.
Peloton’s total revenue in the three months to March fell 4 per cent from a year ago to $717.7mn, while sales of its connected fitness products such as bikes and treadmills sank 14 per cent.
Subscription revenue, which now represents 61 per cent of total revenue, increased 3 per cent in its fiscal third quarter from a year ago, but the results showed signs that customer engagement is flagging. The number of paid app subscriptions plunged 21 per cent from the same period last year.
Chief financial officer Elizabeth Coddington said the Peloton for business channel, which operates in locations such as hotels, had underperformed, while trial demand for its paid app subscription had been soft.
The company’s projected range for year-end paid app subscriptions now implies a decline of about 27 per cent in fiscal 2024, compared with previous expectations of a 9 per cent decline. Total revenue is forecast to decline 4 per cent compared with previous estimates of a 3 per cent decline.
Peloton’s net loss narrowed to $167mn in the third quarter, but still missed analysts’ expectations for a loss of $130mn. The company said it generated positive cash flow for the first time in more than three years, of $8.6mn, a reversal from cash burn of $55.3mn in the same quarter a year earlier.
The company said generating “sustained and meaningful” positive free cash flow was a “top priority”, and announced on Thursday plans to cut about 400 jobs, continue cutting its retail showroom footprint and reduce spending on marketing and software in an effort to lower costs.
Peloton said the plan would result in annual cost savings of more than $200mn by the end of its 2025 fiscal year.
Group chair Karen Boone will serve with Bruzzo as interim co-chiefs until the company has found a permanent replacement for McCarthy, who will become a strategic adviser to Peloton until the end of the year.
“Under Barry’s leadership, we achieved one of his primary goals, which was generating positive free cash flow this quarter,” Boone said on a call with investors, adding that the company expected positive free cash flow for the final quarter and in fiscal year 2025.
“With the business more stable, the board decided to pivot to a leader who’s going to architect and lead the next phase of growth for the company.”
Peloton shares jumped as much as 18 per cent shortly after Wall Street’s opening bell on Thursday, but reversed course to be down about 9 per cent lower in afternoon trading.
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