Trying to fend off unhappy investors and bolster sales of its at-home fitness equipment, Peloton announced Tuesday that it had replaced its chief executive, John Foley, who also is a co-founder, and said it would lay off 2,800 employees.
Barry McCarthy, who stepped down last year as the chief financial officer of Spotify, was named chief executive and Foley was made executive chairman.
The layoffs represent about 20% of its corporate workforce. Separately, the company said it lost $439 million in its most recent quarter, and it lowered its full-year forecasts for revenue, subscriptions and profitability.
McCarthy takes over Peloton at a tumultuous time for the company. Once a pandemic winner, it has struggled to recalibrate its supply chain to meet tempering demand as consumers have left the house for their workouts.
He will work closely with Foley, a dynamic he is familiar with, having worked alongside founders as a senior executive at Netflix and Spotify.
Peloton said it had been running a succession process over the last several months. “As I transition out of the CEO role and into that of executive chair, I could not be more excited to partner closely with Barry,” Foley told analysts on a conference call Tuesday.
In hopes of shoring up its bottom line, Peloton said it was seeking to save at least $800 million annually by scouring staffing levels, marketing, real estate, software, outside services and more, Jill Woodworth, the company’s chief financial officer, said on the call.
“Every cost bucket is under scrutiny,” she said, adding that the “significant restructuring” could also have an impact on demand for Peloton’s products.
The moves could buy Peloton time as it fends pressure from Blackwells Capital, an activist investor that had called for the company to fire Foley and weigh a sale.
On Tuesday, Blackwells said the company’s actions “do not address any of Peloton investors’ concerns” and again urged Peloton to explore a sale, citing a long list of potential buyers, including Netflix and Amazon. A buyer could pay $75 per share and still make money, according to “myriad valuation metrics,” Blackwells said.
But Peloton’s woes may give potential suitors pause. Its sales have slowed as people have returned to gyms, and the planned layoffs reflect that the company may need to cut costs after expanding rapidly earlier in the pandemic. Nike, which has been mentioned as a potential buyer, has stumbled in some recent acquisitions and is focused on expanding its brand. For Amazon, a deal might not be large enough to have an impact. And private equity firms may want a clearer path to profitability.
But the biggest drawback for potential buyers may be that Foley and other insiders control a majority of Peloton’s shares and thus will decide on a potential sale. Peloton said Tuesday that it had no plans to make changes to its super-voting stock.
Peloton still needs to burnish its public image. Last year, it disclosed that a child had died in an accident involving one of its treadmills. The U.S. Consumer Product Safety Commission called on Peloton to recall its Tread+ machines, warning that dozens of injuries had also been linked to the product. Foley initially fought the recall, then relented, saying he had “made a mistake” by resisting the agency’s request and apologizing for not engaging “more productively with them from the outset.”
Other public mishaps have happened fictitiously: Two television characters had heart attacks on its treadmills this year. (One survived, the other didn’t.)
Peloton also announced Tuesday it was appointing two new members to its board: Angel Mendez, who previously worked as executive vice president and chief operating officer of HERE Technologies and as a senior executive at Cisco Systems, and Jonathan Mildenhall, a co-founder of TwentyFirstCenturyBrand. Erik Blachford, who has served as a director since 2015, will step down.