Peloton CEO resigns and company to lay off 2,800 employees

Peloton CEO Resigns and Company Slashes 2.8K Jobs

After a $439M loss, Peloton’s CEO resigns and the company plans to lay off 2.8K employees and cut $800M in annual costs.

After losing $439.4 million in the second quarter of fiscal year 2022, Peloton is scrambling to right the ship. This week, the company announced leadership changes and employee layoffs as part of a major corporate restructuring. Peloton CEO and co-founder John Foley resigned his position and will become executive chair of the board of directors. Barry McCarthy, previously in leadership roles at Spotify and Netflix, will serve as CEO and president, while the immediate past president, William Lynch, will leave his leadership role to serve as a non-executive director on the board.

Karen Boone, lead independent director, said the leadership changes were part of the company’s succession planning, and Foley has been working with the board for the last several months to prepare him for his new role.

“We all agree that Barry is uniquely suited to lead Peloton into its next chapter and that this leadership transition will best position Peloton for sustainable growth, profitability, and long-term success. Barry is a proven leader, well known for his financial acumen and record of driving transformative change at iconic companies including Netflix and Spotify,” said Boone in a February 9, 2022 news release.

Foley put a positive spin on the situation, saying he was proud to have helped build a community of more than 6.6 million members, and he looks forward to working with McCarthy and learning from him.

“I’m incredibly proud to have worked with such talented teammates over the years who have helped me build Peloton into what it is today, and I’m confident that Barry is the right leader to take the company into its next phase of growth,” Foley said.

Major corporate restructuring

Image courtesy of Peloton

In addition to other board changes, Peloton announced a series of cost-saving measures that would cut costs, and drive growth, profitability, and free cash flow. The company expects these changes to yield $800 million in annual run-rate cost savings. Some of the changes include:

  • Peloton will reduce planned capital expenditures by $150 million in 2022.
  • The company will “right-size the organization” by cutting 2,800 jobs around the world, or 20% of its workforce, according to The New York Times.
  • Foley said Peloton instructors will not be impacted.
  • Peloton will “wind down the development” of Peloton Output Park, where the company had hoped to centralize its North American manufacturing operations.
  • Peloton plans to leverage third-party relationships and its logistics networks to reduce its owned and operated warehousing and delivery footprint.

“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,” said Foley. “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.”

“These decisions, particularly those related to our impacted Peloton team members, were not taken lightly. We greatly value the contributions of our talented colleagues and are committed to supporting impacted team members in their transitions. We thank our global team members for their focus and dedication through this process,” added Foley.

Where did things go wrong?

During the pandemic, Peloton was the darling of the workout world. With people stuck at home due to government-imposed shelter-in-place orders, many turned to Peloton’s high-quality exercise equipment and professional workout programs. But, in 2021, a major Peloton treadmill recall hit the company hard financially. Their reputation took a hit too when Peloton initially failed to heed the advice of the Consumer Product Safety Commission for a voluntary recall after 70 injuries and a death were reported as a result of Peloton treadmiless.

It was clear the company was in trouble when the company tried to raise $1 billion in capital through a public offering last November. The situation didn’t improve as Saturday Night Live did a parody of the company with a “Pelotaunt” exercise bike that taunted its owners and when Sex and the City’s Mr. Big died after working out on a Peloton treadmill. Other missteps along the way included overestimating product demand, inability to deliver customer orders on time, and the COVID bump turning into a COVID slump.

Image courtesy of Peloton

Looking to the future

In his remarks to shareholders, Foley admitted this was a humbling time for the company.

“We remain confident in the fundamentals of our business, the strength of our platform, and the significant growth potential for Connected Fitness and our leadership position within it. The decisions we have made will make us a leaner and more nimble organization that is better able to execute against our sizable growth opportunity,” Foley said. “As we adjust our operations, our commitment to putting our Members first and to increasing the accessibility of our platform remains unchanged.”

Investor reaction

Investors reacted positively to what they heard. As of 7:59 PM Eastern, Peloton stock closed at $38.77 per share, up $4.40 from the previous day.

Source: Google

Not all investors are impressed, however. The New York Times reports that Blackwells Capital, an activist investment firm who owns less than 5% of Peloton, has pressured Peloton to put the company up for sale. The investment firm suggested that Amazon, Nike and Google might be potential buyers as they seek to increase their piece the of connected fitness pie.

Insider Take

There are so many variables at play here that we won’t even guess what is on the near-term or long-term horizon for Peloton, a company with so much potential. What is clear is that Peloton needs to pull itself together, overhaul its organization, and move it toward profitability quickly, or it may not have a choice but to sell itself to the highest bidder. With connected fitness on the rise, Peloton would be an attractive asset to a company making strategic bets in that arena.

Up Next

Don’t miss the latest subscription news. Sign up for updates now!

Search this site

Upcoming events

Subscription Show 2022 is the leading subscription business conference for strategy and operations

Keep ahead of your competition

Register now for our weekly subscription news round-up

  • This field is for validation purposes and should be left unchanged.