But in order to meet that surge in demand, Foley over invested and Peloton was left with a bloated cost structure that it must now restructure in order for the business to survive.
And this is exactly why a lot of companies in the bike industry did not expand their production capacities much beyond adding extra shifts, etc. When you invest in actual infrastructure and that incremental demand wanes, you are screwed.
COVID was a bubble, not a boom and the market is correcting itself.
Foley gone as CEO. Gonna get ugly.
From the article:
Peloton announced sweeping cuts to its workforce and manufacturing ambitions. It said it would reduce corporate positions by 20 per cent and “wind down” a planned $400mn investment in a 1mn sq ft factory in Ohio. Foley had only broken ground on the plant in Troy Township in August, promising that it would bring more than 2,000 jobs to the area and give Peloton “a massive strategic lever” to ensure it could meet demand for years to come. The strategic reversal will cost $130mn in cash charges and $80mn in non-cash charges, Peloton said, while cutting $150mn from this year’s capital spending and yielding “at least $800mn in annual run-rate cost savings”.
They accelerated the earnings announcement and call to 8:30am EST this morning coinciding with the announcements (new CEO, Q2 earnings, layoffs, capital cuts, etc.) And, to @dcrainmaker point, customer subscription growth continues (and revenue is up for the quarter)
See shareholder letter and earnings results here:
In the FT article, however, they show that theres a major decline in average monthly workouts per user from 25 to 15. Its an interesting chart.
In the short term, it will be tough for many employees - of course those who are being let go and even many that stay that are seeing friends and coworkers leave. But they will be re-energized (see below).
This would be industry wide as Covid impact lightens. But better to focus on customers:
I give HUGE credit to the board for such an aggressive set of moves. Clean up the place once with and with new top leadership without having the visionary founder completely exit (exec chairman).
Def will be interesting. That dual share structure will only cause more trouble in the future imo.
Mostly cause the financial press will run tons of stories trying to get him to sell the company to the PE people.
Who said business was boring?
Re P.E.: I don’t think so. I’d still give that a probability of zero for a couple of reasons:
ps. So far shareholders are loving it: PTON is up from pre-market of $24 to $36 as of now.
Crikey that volume.
Also, share price down 80% yoy. Thats a big ouch.
Agreed, and some departure is likely to have already taken place in addition to some additional departures that may take place (regardless of retention $).
However, if you read the details of the shareholder letter and look at all of the actions taken and planned, you realize that this is a very sophisticated BoD. No doubt that Barry is having a company meeting right now with the broad leadership team and then [perhaps later today or tomorrow] with the broader employee base. Just based on the size of the severance $, retention $ is likely there in the form of salary adjustments for the key employees. Also, you would expect a new top off stock grant.
How many employees did they have to start with? 2 800 positions cut? I see 5 800 end 2020…
The logical pieces: drop the Peloton Output Park (9 months after announcing it…), and shift from in-house to 3rd-party logistics.
Oooof…Peloton f*cks it up again.
Indeed, once again demonstrating quite clearly the ever-present disconnect between Wall Street prices and how a company grows/performs.
It’s kinda insane seeing some of the ‘reporting’ on this, some articles are logical, and others are just sorta crazy. One only needs to look at how many stories the free subscription bit has generated. Serously?
One of the things Peloton arguably screwed up the most though over the past 2 years isn’t all the random things people like to claim: Instead, it’s their lack of international growth. They had the world on a platter, and didn’t take any meaningful steps to grow/expand that except Australia (and even that’s questionable for a slew of reasons).
In any event…the world spins on.
That’s a lot to cut. It’s going to require a big change to the legacy Peloton philosophy to cut that amount. But if they do, they’ll get to profitability. 
But how can you expand internationally when you can’t meet the demand in your existing market? Sure you can deprive them of the goods even more and ship to new markets, but that isn’t exactly a smart business decision.
But Peloton has had extra production capacity since late last spring sometime. And over this entire time period, they never laid the groundwork for further expansion into other nearby markets. Instead of hiring other languages (such as Spanish or French), they’ve continued to hire more and more instructors that are mostly duplicate of what’s already there.
Similarly, from an app-only standpoint, that didn’t require hardware. It literally just required them to make it available in other app stores. Especially during peak covid, they had tremendous demand from countless international markets that would happily have taken English (with a side of German) classes - and paid for it. Yet, they didn’t capitalize on that.
I thought it was later than that, but you track this much more closely than I do, so I will absolutely defer to your timeline.
Definitely agreed that they should have, at a minimum, been laying the groundwork for international expansion. If they had done that, they would have places to ship all the excess hardware they have now. E
There are some classes in other languages, but I now only use the app for off the bike stuff, so I don’t know how many cycling classes there are.
My concern as a shareholder was always that I just didn’t see the enthusiasm for the product outside the US. Was that because they failed at marketing or because the markets are different (smaller homes, more daily activity outside the home, etc.)? I know that’s chicken and egg, but I’m curious if you have any insight as someone who’s lived outside the US for an extended period.
Here’s a different perspective:
In an individual termination, the I.T. department would be on notice to remove access to systems of the effected individual at a certain time of the planned 1:1. However, mass layoffs are extremely difficult to execute logistically. Most likely individuals were given notice individually in 1:1 meetings. However, when you need to meet with 2,800 people individually, I.T. would be not likely to be execute such a plan and hence requiring them to do it in large #s.
Coincidental with the shareholder letter, John Foley probably sent out an employee letter announcing what was taking place. So individual concerns would more have been along the lines of “Am I included?”; and after they begin to see what is happening, “Am I next?”.
Despite emotions, most people act professionally about it, particularly since the tech market is robust and the likelihood of getting rehired shortly is high. IMO, what this individual advertised [to future potential employers] is this: “I am not a professional and a very vengeful person”. In large layoffs you lose a lots of very good people. However, it is also easier than normal opportunity to get rid of under-performers and trouble makers. More than likely, this individual falls into the latter category, if not both.
I was similarly surprised at the lack of international expansion [for their bike business], and particularly surprised that they launched the tread prior to doing as such. It is additionally easy for us to critique Peloton for the U.S. manufacturing expansion, as many are doing, and likely the same people that were criticizing the company in real time for their inability to meet demand.
However, Monday morning quarterbacking is very easy. What is not appreciated is just how fast Peloton has grown over the past 10 years it has been in business. If employee headcount is a loose metric of activity, then consider this:
TrainerRoad, since its inception, has had a CAGR of ~35%, a very respectful growth rate. Starting 2 years later, Peloton’s growth rate has been ~135% or 3.5x this number. While there are many reasons that one can not compare TR to Peloton, even TR has had many mistakes - from small to significant - that I will not list here as to not offend TR users. Imagine trying to grow at Peloton’s [insane] growth rate without making mistakes where decisions are substantially more impactful and noticed by a larger # of people? This is not to suggest that Peloton leadership should not be held accountable for decisions, as Foley is doing. It’s just that sitting from the sidelines and critiquing [as we all are doing] is both easy and with little understanding of the circumstances of the decisions made at the time.