The ride for Mr. Foley is over, says Blackwells Capital
With less than two weeks until Peloton reports its second-quarter fiscal earnings on February 8th, Blackwells Capital has sent a jaw-dropping letter outlining its demand for John Foley, Peloton’s founder and CEO, to be fired. The letter, sent to Peloton’s board of directors, alleges improprieties such as nepotism, a reluctance to work with the Consumer Product Safety Commission, misleading investors, and accuses Foley of trying to “salvage his legacy.”
Foley must be held accountable for his “repeated failures” to lead the interactive fitness platform, according to the letter written by Jason Aintabi, Blackwells’s chief investment officer. Aintabi suggests that Peloton be placed for sale and that a strategic buyer like Apple, Sony, Disney, or Nike could be considered.
Aintabi begins the letter by expressing grave concerns about Peloton’s performance and direction, citing “ongoing failures of [Peloton’s] leadership team.”
Blackwells believes that the pandemic offered Peloton a “tremendous and unexpected opportunity” to accelerate and drive performance but says Peloton has “squandered this opportunity.” Aintabi notes that PTON is trading below its IPO price and has fallen more than 80% from its high.
“Remarkably, the Company is on worse footing today than it was prior to the pandemic, with high fixed costs, excessive inventory, a listless strategy, dispirited employees and thousands of disgruntled shareholders. And no wonder, the latter, given that Peloton underperformed every other company in the Nasdaq 100 over the last twelve months,” writes Aintabi.
“Mr. Foley should be fired as CEO, immediately,” the letter continues.
Aintabi writes that Peloton’s CEO must be held responsible, and goes on to list what he refers to as “repeated failures.” He points out that while investors have lost nearly $40 billion in wealth, Foley sold stock regularly and repeatedly, garnering more than $115 million.
Aintabi listed the following as Foley’s failures:
- “Misleading Peloton investors that the Company did not need additional capital, just weeks before issuing $1 billion of equity”
- “Vacillating on pricing strategy, leading to consumer, market and analyst confusion”
- Upending the product roadmap he himself authored, delaying rollouts and missing deadlines”
- “Being initially reluctant to work with the Consumer Product Safety Commission despite selling a product that injured at least 29 children”
- “Demonstrating a repeated inability to forecast consumer demand, churn, and product returns – to the point of removing related metrics from the Company’s public guidance”
- “Committing to a 300,000 square foot, 20-year lease for office space in New York City, the most expensive office and labor market in the country, seemingly because he enjoys living there (and owns a newly-acquired $55 million vacation home nearby)”
- “Making significant capital investments to expand manufacturing capability only to then shut down manufacturing for multiple products for many months”
- “Failing to ensure that the Company had effective internal controls over financial reporting, leading to a warning from his auditor”
- “Hiring his wife as a key executive”
- “Leading a company that received the worst possible score for environmental disclosure and governance risk, and nearly the worst possible score for social and human rights disclosure, from a respected proxy advisory and governance firm.”
Aintabi says that Foley “should have enough self-awareness and enough self-interest to resign as a director,” and says Peloton should be placed for sale. The letter states that Peloton and its customer base would be attractive to tech, streaming, or metaverse companies and says Peloton has become a “mess” of an independent company.
Aintabi finished the letter by recognizing that some of Peloton’s directors may feel obligated to Foley but that they don’t exist to “preserve Mr. Foley’s dignity of pride” and concludes with the following statement: “The ride for Mr. Foley is over. This Board must now independently chart a new path for Peloton.”
Peloton had recently identified a leaker after internal documents and recordings were published. The leaks revealed that Peloton would pause production of its Bike and Tread, a claim that Foley said wasn’t accurate in a recent address to Peloton employees. Foley did suggest that job cuts would be on the horizon, a move that he said would be the “absolute last lever we would ever hope to pull.” The fitness company has been working with McKinsey & Co., the well-known management consulting agency as it tries to re-work its organization.
Foley reportedly sold $119 million worth of Peloton’s stock starting in November 2020, according to SmartInsider.
Peloton expects to release its final second quarter Fiscal 2022 results after the U.S. stock market closes on Tuesday, February 8.
Courtney Rehfeldt has worked in the broadcasting media industry since 2007 and has freelanced since 2012. Her work has been featured in Age of Awareness, Times Beacon Record, The New York Times, and she has an upcoming piece in Slate. She studied yoga & meditation under Beryl Bender Birch at The Hard & The Soft Yoga Institute. She enjoys hiking, being outdoors, and is an avid reader. Courtney has a BA in Media & Communications studies.