Connected exercycle maker Peloton is in “crisis mode” according to one analyst, after “sacrificing” its CEO John Foley this week and scrambling to get the business back on the rails.
Neil Saunders, MD at GlobalData said Peloton was justified in axing Foley who had lost the confidence of investors and is responsible for the current state of the company. He will be replaced by Barry McCarthy, the former CFO of Spotify and Netflix.
“However, by itself, a changing of the guard solves nothing,” warns Saunders. “Peloton is left with the same problem of waning demand at a time when the company’s business model is geared up for exceptionally strong growth. This has created a significant imbalance between costs and revenues, which will likely be highlighted when it reveals its results later today.”
Foley’s departure is part of a broader restructure that will result in 2800 jobs being culled.
In the wake of falling sales – and a share price on a similar course – various international media have speculated companies like Apple or Amazon may snap up the company while its value is low.
Saunders said Peloton’s problem did not relate to its products. “The central problem is one of hubris and bad judgment. Peloton incorrectly assumed that the demand created by the pandemic – as people switched away from gyms to home fitness – would continue to curve upward. As society has returned to some semblance of normality, this has proven to be false – with subscriber numbers coming in well below forecast.”
He suggested that Peloton has overinvested in store network expansion, factories, warehouses and other facilities preparing for growth that is unlikely to materialise.
“The first step of the new CEO, Barry McCarthy, should be to slash-costs to right-size the business. Unfortunately, this includes some stores which are not appropriate for a company that sells a very limited selection of what are, in essence, products aimed at a very small subsection of consumers.
The second action should be to explore a sale of the business which would, if the right partner is found, put Peloton on a much more secure footing. The question, of course, is who would buy the challenged brand,” he said.
On the takeover rumours, Saunders said Amazon could potentially integrate with Alexa and potentially Prime, boosting services revenue.
“Nike seems an obvious choice, simply because of the links to fitness and its desire to do more in digital training. Nike could pull in a lot of athletes for one-off classes and events. It would also, like Amazon, provide a phenomenal distribution channel,” said Saunders.
“However, whether Nike wants to get more into the equipment business remains to be seen.”