Barry McCarthy, CEO of Peloton Interactive, is stepping down after the company's stock plummeted 92% since he took over in a bid to revitalize the connected fitness company known for slapping iPads on stationary bikes and charging high markups.
In February 2022, McCarthy—a former Spotify and Netflix executive—took over from co-founder John Foley. He attempted to turn around the company, which had experienced thousands of layoffs, management shake-ups, and outsourcing business as the Covid pop in demand faded.
However, those efforts failed when Peloton announced a new restructuring program on Thursday. The struggling company plans to cut 15% of staff, or about 400 workers, and reduce its retail footprint to save $200 million by the end of 2025.
"This restructuring will position Peloton for sustained, positive free cash flow, while enabling the company to continue to invest in software, hardware and content innovation, improvements to its member support experience, and optimizations to marketing efforts to scale the business. Upon full implementation, the company expects the plan to result in reduced annual run-rate expenses by more than $200 million by the end of its 2025 fiscal year," the company wrote in a press release.
A series of product recalls over safety issues only added to problems for McCarthy as lower sales and profits continued sliding. The share price has plunged 92% during the CEO's tenure.
Besides a new restructuring program, the company also reported it lost $167.3 million, or 45 cents per share, for the third quarter. That's better than the $275.9 million, or 79 cents per share, in the same quarter last year. Revenue totaled $717.7 million, below the average Wall Street estimate of $719.2 million tracked by Bloomberg.
Here's a snapshot of third-quarter results (courtesy of Bloomberg):
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Revenue $717.7 million, estimate $719.2 million
-
Connected fitness revenue $279.9 million, estimate $288.2 million
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Subscription revenue $437.8 million, estimate $429.7 million
-
Connected fitness subscribers 3.06 million, estimate 3.08 million
-
Paid digital subscribers 674,000, estimate 742,266
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Adjusted Ebitda $5.8 million, estimate loss $25 million
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Loss per share 45c
-
Cash flow from operations $11.6 million vs. negative $40.9 million y/y, estimate negative $29.6 million
Peloton also lowered its full-year revenue guidance by $25 million to a range of $2.675 billion to $2.7 billion, a dip from last year's $2.8 billion.
Here's a snapshot of the full-year outlook (courtesy of Bloomberg):
-
Sees revenue $2.68 billion to $2.70 billion, saw $2.68 billion to $2.75 billion, estimate $2.71 billion (Bloomberg Consensus)
-
Sees adjusted Ebitda loss $5.0 million to $20.0 million, saw loss $25 million to loss $75 million, estimate loss $62.9 million
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Sees connected fitness subscribers 2.96 million to 2.98 million, saw 2.99 million to 3.01 million, estimate 3.04 million
Here's what Wall Street analysts are saying (list courtesy of Bloomberg):
Bloomberg Intelligence, Geetha Ranganathan
- The headcount cuts will aid free cash flow "yet the core issues remain, namely the weakness in demand and uncertainty over subscription growth, with 44,000 subscriber losses in 3Q"
JPMorgan, Doug Anmuth
Says he's encouraged by the company returning to positive free cash flow, and reporting lower operating expenses and positive adjusted Ebitda
In addition, "the cost reductions announced today should better align the cost profile to PTON's current revenue trends & help make debt refinancing increasingly likely, which should help the equity story"
Rates overweight with PT $8
BMO Capital Markets, Simeon Siege
"From our outsider's viewpoint, we continue to believe growth is behind us and focusing on bear-hugging brand loyalists/walking away from expensive growth hopes can improve FCF/Ebitda (seemingly happening)"
If this happens with new management, shares look undervalued, but if growth remains new management's priority, "we worry about sustained FCF/looming debt questions."
Rates market perform with PT $7.50
Peloton's recovery depends on another Covid lockdown by the government that shuts down businesses and forces everyone into their homes for months.
Barry McCarthy, CEO of Peloton Interactive, is stepping down after the company’s stock plummeted 92% since he took over in a bid to revitalize the connected fitness company known for slapping iPads on stationary bikes and charging high markups.
In February 2022, McCarthy—a former Spotify and Netflix executive—took over from co-founder John Foley. He attempted to turn around the company, which had experienced thousands of layoffs, management shake-ups, and outsourcing business as the Covid pop in demand faded.
However, those efforts failed when Peloton announced a new restructuring program on Thursday. The struggling company plans to cut 15% of staff, or about 400 workers, and reduce its retail footprint to save $200 million by the end of 2025.
“This restructuring will position Peloton for sustained, positive free cash flow, while enabling the company to continue to invest in software, hardware and content innovation, improvements to its member support experience, and optimizations to marketing efforts to scale the business. Upon full implementation, the company expects the plan to result in reduced annual run-rate expenses by more than $200 million by the end of its 2025 fiscal year,” the company wrote in a press release.
A series of product recalls over safety issues only added to problems for McCarthy as lower sales and profits continued sliding. The share price has plunged 92% during the CEO’s tenure.
Besides a new restructuring program, the company also reported it lost $167.3 million, or 45 cents per share, for the third quarter. That’s better than the $275.9 million, or 79 cents per share, in the same quarter last year. Revenue totaled $717.7 million, below the average Wall Street estimate of $719.2 million tracked by Bloomberg.
Here’s a snapshot of third-quarter results (courtesy of Bloomberg):
-
Revenue $717.7 million, estimate $719.2 million
-
Connected fitness revenue $279.9 million, estimate $288.2 million
-
Subscription revenue $437.8 million, estimate $429.7 million
-
Connected fitness subscribers 3.06 million, estimate 3.08 million
-
Paid digital subscribers 674,000, estimate 742,266
-
Adjusted Ebitda $5.8 million, estimate loss $25 million
-
Loss per share 45c
-
Cash flow from operations $11.6 million vs. negative $40.9 million y/y, estimate negative $29.6 million
Peloton also lowered its full-year revenue guidance by $25 million to a range of $2.675 billion to $2.7 billion, a dip from last year’s $2.8 billion.
Here’s a snapshot of the full-year outlook (courtesy of Bloomberg):
-
Sees revenue $2.68 billion to $2.70 billion, saw $2.68 billion to $2.75 billion, estimate $2.71 billion (Bloomberg Consensus)
-
Sees adjusted Ebitda loss $5.0 million to $20.0 million, saw loss $25 million to loss $75 million, estimate loss $62.9 million
-
Sees connected fitness subscribers 2.96 million to 2.98 million, saw 2.99 million to 3.01 million, estimate 3.04 million
Here’s what Wall Street analysts are saying (list courtesy of Bloomberg):
Bloomberg Intelligence, Geetha Ranganathan
- The headcount cuts will aid free cash flow “yet the core issues remain, namely the weakness in demand and uncertainty over subscription growth, with 44,000 subscriber losses in 3Q”
JPMorgan, Doug Anmuth
Says he’s encouraged by the company returning to positive free cash flow, and reporting lower operating expenses and positive adjusted Ebitda
In addition, “the cost reductions announced today should better align the cost profile to PTON’s current revenue trends & help make debt refinancing increasingly likely, which should help the equity story”
Rates overweight with PT $8
BMO Capital Markets, Simeon Siege
“From our outsider’s viewpoint, we continue to believe growth is behind us and focusing on bear-hugging brand loyalists/walking away from expensive growth hopes can improve FCF/Ebitda (seemingly happening)”
If this happens with new management, shares look undervalued, but if growth remains new management’s priority, “we worry about sustained FCF/looming debt questions.”
Rates market perform with PT $7.50
Peloton’s recovery depends on another Covid lockdown by the government that shuts down businesses and forces everyone into their homes for months.
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