Peloton CEO Barry McCarthy has announced his resignation, along with plans for significant staff reduction and debt refinancing. McCarthy, a former executive at Spotify and Netflix, will remain as a strategic advisor to Peloton until the end of the year. Karen Boone, the company’s chairperson, and Chris Bruzzo, a director, will serve as interim co-CEOs while the search for a permanent CEO is underway.
The company’s restructuring plan includes a 15% reduction in its global headcount, amounting to approximately 400 employees. Peloton also plans to close retail showrooms and make changes to its international sales strategy. These measures are aimed at aligning the company’s cost structure with its current business size and are expected to reduce annual expenses by over $200 million by the end of fiscal 2025.
The most affected departments from the restructuring will be Peloton’s research and development, marketing, and international teams. The company stated that these changes will position Peloton for sustained positive free cash flow while allowing it to continue investing in software, hardware, content innovation, member support experience, and marketing efforts.
Peloton’s shares initially surged more than 12% in premarket trading but opened over 6% lower after the conference call with Wall Street analysts. McCarthy took over as CEO of Peloton in February 2022 and has spent the past two years restructuring the business. Under his leadership, the company implemented mass layoffs, closed showrooms, and introduced new revenue drivers like the rental program.
However, despite these efforts, Peloton’s fiscal third-quarter results fell short of expectations. The company reported a net loss of $167.3 million, or 45 cents per share, compared to a loss of $275.9 million, or 79 cents per share, in the same period last year. Revenue also dropped by about 4% to $718 million.
Peloton has been trying various initiatives to boost sales, such as removing the free membership option from its fitness app and expanding its corporate wellness offerings. However, the company has struggled to achieve sales growth and has seen revenue decline for nine consecutive quarters. Peloton’s revenue hasn’t grown since December 2021, when demand for its stationary bikes was high due to the Covid-19 pandemic.
As a result, Peloton has lowered its outlook for paid connected fitness subscriptions, app subscriptions, and revenue for the current fiscal year. The company now expects full-year revenue to be $2.69 billion, a reduction of about $25 million. However, Peloton raised its outlook for gross margin and adjusted EBITDA.
McCarthy had set a goal of returning Peloton to revenue growth within a year and achieving positive free cash flow by June. While Peloton reached positive free cash flow early during its third quarter, it remains to be seen how sustainable this achievement is. The company has been facing challenges in selling enough hardware, which is costly to produce and has become less popular as people return to gyms.
Peloton’s search for a new CEO comes at a critical time as the company works to overcome its financial challenges and regain growth. The board is looking for a leader who can drive the next phase of growth and navigate Peloton’s path to profitability. With the right leadership and strategic initiatives, Peloton aims to position itself for long-term success in the highly competitive fitness industry.
