Peloton Interactive Inc. (NASDAQ:PTON) experienced a dramatic drop in its stock value as Chief Executive Officer Barry McCarthy announced his intention to step down and the company revealed plans for significant layoffs, aiming to reduce its global workforce by 15%.
In a statement released on Thursday, Peloton announced that its board will initiate a search to appoint a new CEO. Board Chair Karen Boone and Director Chris Bruzzo will temporarily assume the roles of co-CEOs.
Shares of Peloton plummeted by as much as 16% to $2.71 in New York, marking the steepest intraday decline since February. Before this plunge, the stock had already declined by 47% for the year.
McCarthy, a seasoned executive with experience at Spotify Technology SA and Netflix Inc., assumed the CEO position in early 2022, endeavoring to overhaul the company. His efforts included significant layoffs, reorganization of management, and outsourcing of business functions. Additionally, he aimed to transition Peloton into more of a services-oriented company, with its mobile app serving as a central focus, rather than solely relying on the sale of high-priced exercise equipment.
During his tenure, McCarthy also initiated new partnerships, such as the recent collaboration with Hyatt Hotels Corp. to introduce Peloton bikes at their properties, in a bid to bolster sales.
However, McCarthy admitted in recent months that Peloton continued to grapple with challenges related to scaling its operations and cautioned investors in February that revenue growth might not resume until the fourth quarter.
Peloton, headquartered in New York, experienced significant growth during the early stages of the pandemic as lockdown measures led to heightened demand for its stationary bikes and fitness classes. However, as gym facilities reopened, the number of paying subscribers dwindled, resulting in excess inventory. Furthermore, a series of product recalls due to safety concerns tarnished the company’s reputation and contributed to declining sales and profits. Over the past three years, Peloton’s stock has plummeted, erasing more than 90% of its market value.
To address its financial challenges, Peloton unveiled a new restructuring initiative aimed at slashing annual expenses by over $200 million. As part of this plan, the company will further reduce its retail showroom footprint and cut approximately 400 jobs.
In a statement, Peloton emphasized the goal of aligning its cost structure with the current size of its operations to achieve sustained positive free cash flow, which is a top priority. The company disclosed that it is collaborating closely with its banking partners, including JPMorgan Chase & Co. and Goldman Sachs Group Inc., to devise a refinancing strategy.
Peloton underscored its commitment to achieving positive sustained free cash flow, which it believes will enhance its attractiveness to debt holders.
The company also revised its revenue guidance for the fiscal year, with the new range falling below analysts’ expectations. Peloton now anticipates sales of $2.68 billion to $2.70 billion for the full year, along with 2.96 million to 2.98 million connected fitness subscribers, lower than the previous forecast. This adjustment reflects Peloton’s updated outlook for hardware sales based on current demand trends and expectations for seasonally lower demand.
In the fiscal third quarter, Peloton reported revenue of $717.7 million, falling short of analysts’ projections. The number of connected fitness subscribers stood at 3.06 million, slightly below estimates and nearly unchanged from the previous year.
Peloton outlined plans to revamp its international market approach to be more targeted and efficient while affirming its commitment to its existing international markets. The company emphasized leveraging global strategies and capabilities where applicable.
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