• Peloton shares have tumbled on growth, production concerns

24 January 2022

The global Asset Manager has exercised its own muscles by sending a letter to the Peloton Board demanding it fire its CEO, John Foley, prompting a 2% rise in New York trading of Peloton shares on Monday morning. That’s gotta hurt Mr Foley’s pride hasn’t it?

Not only has Blackwells Capital LLC, which has a stake of less than 5%, called for the departure of CEO and co-founder John Foley, but also wants Peloton to explore a sale of the business. Peloton could be an attractive acquisition target for larger technology or fitness firms, according to an investor letter shared widely among media and the financial buyers.

Its no secret that Peloton’s shares tumbled more than 80% from their all-time high a year ago, as the gradual easing of pandemic-era restrictions fueled concern that growth of the stay-home fitness company will slow. Once CNBC reported that Peloton was temporarily halting production of its bikes and treadmills last week, he stock touched a nearly two-year low.

“With the stock now trading below the IPO price, and down more than 80% from its high, it is clear that the company, the executives and the Board have squandered this opportunity,” Jason Aintabi, chief investment officer at Blackwells, wrote in the letter.

Blackwells cited firms including Apple Inc., Disney, and Nike Inc. as potential buyers, and also accused Peloton of being “reluctant to work with the Consumer Product Safety Commission.” Now there’s a phrase you never want attached to your brand!

While Peloton has recently hired McKinsey & Co. to evaluate its business and costs, it’s unclear if a potential sale is on the cards or if Blackwells will succeed in ousting Foley. The former Barnes & Noble Inc. e-commerce executive and cycling enthusiast founded the company after posting a video to Kickstarter in 2013. The CEO and other insiders control over 80% of Peloton’s voting power as of Sept. 30,

In the letter from Blackwells, it decried the CEO’s leadership, (or lack thereof) citing failed forecasting and inconsistent strategy as well as governance problems such as a lack of financial controls. It also said Foley misled investors by saying that the company didn’t need more capital, weeks before a $1 billion stock offering.

In a totally non-negotiable comment, Aintabi writes “We believe that no Board exercising reasonable judgment could leave Mr. Foley in charge of Peloton,” and goes on to say “The company has gotten too big, too complex and too damaged for Mr. Foley to lead it. And he should have enough self-awareness and enough self-interest, to resign as a director.” Hard to know how that works; you have to be self aware enough to know you’re not sufficiently self aware it would seem.

Peloton, which has slashed its annual forecast by about $1 billion, last week posted lower-than-expected revenue of $1.14 billion for the December quarter. Foley said in a statement the company is taking steps to improve its profitability outlook and optimize costs, pledging to provide more information on its cost-cutting plan when Peloton gives its formal earnings report on Feb. 8.  Err, that’s today then is it?

The company’s public image also took a hit in December, when HBO Max’s “Sex and the City” reboot killed off a Peloton-riding character.

“The ride for Mr. Foley is over,” said Aintabi. “This board must now independently chart a new path for Peloton.”