Pedaling Up a Steep Hill: Peloton Cuts Thousands of Workers, Offers Them 1-Year Free Subscription The company made several announcements early Tuesday morning.
It's been a wild and somewhat rough ride (pun intended) for Peloton over the past few months, between reports of unsafe equipment, announcements that it would be halting further production of its namesake workout machines, unsavory mentions on two popular TV shows and most recently, reports of a possible acquisition by Nike or Amazon.
Last month, the company hit its lowest valuation since March 2020 (right at the onset of the pandemic and before the at-home workout craze), dropping 28%, a nearly $41 billion difference in valuation from the company's high of $49.3 billion in December 2020.
It's no surprise that the company has been headed towards a major shift in leadership and strategy, but Tuesday's announcement comes as less of a shock and more of a sign that things are going downhill fast for the at-home workout giant — no brakes.
The company announced that CEO John Foley will be stepping down from Peloton and that it will be cutting 20% of its corporate workforce. Foley will assume the position of executive chairman and will be replaced as CEO by former Spotify COO Barry McCarthy.
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"Barry is an incredible leader who has held senior executive roles at Spotify and Netflix and is a longtime advisor and board member at public and private technology companies," Foley said in a letter to employees about McCarthy. "This appointment is the culmination of a months-long succession plan that I've been working on with our board of directors, and we are thrilled to have found in Barry the perfect leader for the next chapter of Peloton. I look forward to working with him and invite you to welcome him with open arms."
The company announced a series of changes it plans to undertake in order to cut about $800 million in costs.
The aforementioned layoffs are among these changes, with about 2,800 employees being let go — though it is noted that instructors and talent will not be affected by these cuts. Foley said that employees who are released from the company will receive generous benefits, such as cash compensation, extended healthcare, equity in the company and career services.
Employees that are let go are being given a free membership to Peloton's online exercise programs for one year.
The company also plans to reduce Peloton-owned warehouses and delivery teams and shift to more third-party providers for such services.
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"Peloton is at an important juncture, and we are taking decisive steps. Our focus is on building on the already amazing Peloton member experience, while optimizing our organization to deliver profitable growth," Foley said in a company statement. "With today's announcements, we are taking action to ensure Peloton capitalizes on the large, long-term connected fitness opportunity. This restructuring program is the result of diligent planning to address key areas of the business and realign our operations so that we can execute against our growth opportunity with efficiency and discipline."
Peloton will also halt the development of its new Peloton factory (named Peloton Output Park) in Ohio, which was announced last May. The company says that this will allow for $60 million to be used elsewhere as the company restructures. The factory was set to add about 2,000 new jobs.
The company also reported that it plans to reduce expenditures by $150 million this year and that total restructuring efforts are expected to result in around $210 million spent on severance for employees and other restructuring activities.
Per preliminary Q2 earnings reported last month, the company estimated around $1.14 billion in revenue and dropped around 8.4% in premarket trading.
"Our restructured organization will enable us to improve our execution and incrementally remove added stress from our team," Foley noted. "A lot has changed at Peloton in a relatively short period of time. I get that. I know at times that's come with lots of adversity and challenges. However, I deeply believe that getting back to basics, in many ways, will help us execute with precision and innovation, and that will lead to even greater impact in the long term for all of us who are part of the Peloton journey."
Peloton shot up 12.61% early Tuesday morning in a reverse from premarket movement as news of the restructuring broke.
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