Pandemic Rising Star Peloton Continues to Derail

It is paying for a questionable strategic choice by its former boss, John Foley, which is strongly objected to by shareholders. (Photo: 123RF)

New York. A sensation in the lockdown era, Peloton’s (PTON) exercise bike specialist is having a hard time recovering from the lifting of health restrictions and fell on Wall Street on Tuesday after poor quarterly results.

The company’s shares fell nearly 13% to $12.30 in early New York trading.

From January to March, Peloton recorded a net loss of $757 million (M$US) compared to $8.6 million in the same period last year. On a per share basis and excluding exceptional items, the loss was $2.27, well above the 83 cents expected by the market.

Revenue was $964 million, nearly $300 million less than the prior year and below analysts’ forecasts.

“Turning is hard work,” Peloton boss Barry McCarthy, who took over the group in early February after the departure of founder John Foley, admitted in a letter to shareholders.

“It is an intellectual challenge as well as a constant emotional and physical challenge. This is a real contact sport, ”added the presenter.

Peloton ended the third quarter of its financial year with “slight capitalization for a company of our size,” said Barry McCarthy. Its market value is currently $4.7 billion, up from almost $56 billion at its highest level in January 2021.

To consolidate its finances, the group took out a $750 million loan maturing within 5 years from JP Morgan and Godman Sachs, two banks that did a pilot IPO in 2019.

Barry McCarthy also announced that Peloton will soon be distributing its products to third party retailers, which has not been done so far.

“Competitive environment”

Among the main beneficiaries of the start of the pandemic, Peloton has been clear on the timing for months now, facing a marked slowdown in sales as outdoor activities resume.

He is also paying for a questionable strategic choice by his former boss, John Foley, which is strongly objected to by shareholders.

In February, the company cut 2,800 jobs worldwide, or about 20% of administrative positions. He also put on hold construction on a new plant in Ohio, a project worth about US$400 million.

In mid-April, the company announced price cuts for its bikes and floor mats, as well as price increases for monthly plans starting June 1 in the US and Canada.

Peloton also said on Tuesday that it expects a slight increase in subscription cancellations in the coming months, expecting annual sales of between $675 million and $700 million.

Despite these gloomy prospects, Barry McCarthy, whose goal is to reach 100 million members (up from 7 million currently), tried to reassure during a phone call with Wall Street analysts.

“Despite the share price, I’m pretty optimistic about the future and the amount of leverage we need to activate to improve the company’s operating performance,” he said.

The group’s management is under pressure from activist shareholders, including Blackwells Capital, who are demanding radical changes, including the acquisition of minority stakes by outside investors.

According to the Wall Street Journal, Peloton will explore the possibility of selling 15 to 20% of its capital to bail out its coffers.

“Unfortunately for Peloton, the reshuffle is taking place in a very competitive environment,” notes GlobalData’s Neil Saunders, referring to Apple’s investment in fitness or Lululemon’s investment in yoga classes.

“In these conditions, Peloton will have to work incredibly hard to distinguish itself, especially now that the overall market trend is not blowing in its favor,” the analyst adds.


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