Topline
Shares of Peloton jumped roughly 25% on Tuesday after announcing further cost cuts and the replacement of CEO John Foley with veteran tech executive Barry McCarthy, a move that was heralded by most Wall Street analysts as a “hard but healthy” restructuring decision which decreases the likelihood of a sale.
The recent management changes suggest Peloton won’t be up for sale anytime soon, analysts say.
Key Facts
Peloton reported lackluster quarterly earnings on Tuesday morning in which the at-home fitness company lowered its profit outlook for 2022, announced 2,800 layoffs, $800 million in cost cuts and the replacement of CEO John Foley with former Spotify and Netflix CFO Barry McCarthy.
JPMorgan analyst Doug Anmuth thinks Peloton shares will rebound in both the near- and long-term with McCarthy at the helm to provide a “steady hand” for the company as it rightsizes operations amid waning demand.
BMO Capital Markets analyst Simeon Spiegel says the company is “making hard but healthy choices to reset its business,” though he adds that the process is “rarely quick or seamless” and Peloton’s “path to recovery remains long.”
Baird’s Jonathan Komp says Peloton is getting “a highly experienced” technology and media executive in new CEO Barry McCarthy, who has expertise in the subscription business and can address investor concerns about growth.
The recent management changes also strongly “suggest” that Peloton won’t be up for sale anytime in the near future, says Vital Knowledge founder Adam Crisafulli, a sentiment echoed by the analysts at Baird and BMO Capital Markets.
While the recent news “lowers the probability of a strategic takeover” from megacaps like Apple, Amazon or Nike, outgoing CEO Foley said in an interview Tuesday that Peloton would remain open to any value creating opportunities for shareholders.
Surprising Fact:
Shares of Peloton, which fell over 70% in 2021, largely continued to struggle amid the wider market sell-off in January. After jumping over 50% in the last two days, however, Peloton’s stock is now positive for the year, rising nearly 8% in 2022.
Contra:
While most analysts approve of Peloton’s latest cost cuts and management changes, Wedbush Securities analyst Dan Ives thinks Foley’s exit only increases the likelihood that Peloton is acquired. “Foley leaving makes it more likely that Peloton ultimately sells the company, and the board clearly has major decisions to make,” he said in a note on Tuesday. Though Foley will retain control of the company and its fate, Ives believes “shareholder pressure will build to solicit bids and sell Peloton to a strategic player with potential bidders Apple, Amazon, and Nike likely in the fold.” If the at-home fitness company decides to go ahead as a standalone company, there are “cautionary tales” of companies such as Fitbit and GoPro that have been down this path, he warns.
Crucial Quote:
“The reality is that Foley was the pilot on the Peloton growth plane and him leaving paints a bleak picture with the main visionary no longer in charge,” Ives argues.
Key Background:
Peloton’s stock is surging again after rising nearly 20% a day earlier, amid reports that the at-home fitness company is drawing interest from potential buyers including Amazon, Nike and Apple, among others. The company reported quarterly earnings on Tuesday morning which underwhelmed investors, with total sales only growing about 6% from a year ago to $1.13 billion. Peloton also slashed its 2022 revenue estimate by nearly $1 billion down to less than $4 billion, while also announcing a massive cost cutting plan that includes around 2,800 layoffs. Incoming CEO Barry McCarthy was reportedly chosen in an extensive review process, with Foley—who will remain executive chairman—calling him a visionary in the media, software and subscription business. McCarthy is well known on Wall Street for his eight-year tenure as CFO at Netflix and for later playing a significant role in helping take Spotify public via direct listing in 2018.
What To Watch For:
Activist investor Blackwells Capital, which has been pushing for Peloton to explore a sale and has “grave concerns” about the company’s performance, dismissed the management changes. “Peloton CEO John Foley naming himself Executive Chairman and hiring a new CFO does not address any of Peloton investors’ concerns,” according to a new letter from Blackwells Capital on Tuesday. “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.”
Further Reading:
Apple, Amazon Or Nike? Peloton Stock Surges, But Here’s What Experts Say About A Takeover (Forbes)
Peloton’s CEO Might Be Out, But He Still Controls The Company And Can Make It Harder To Sell (Forbes)
