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Despite Peloton Stock Taking a Dive, CEO is Optimistic – Says This Could Be a Turning Point

Despite Peloton Stock Taking a Dive, CEO is Optimistic – Says This Could Be a Turning Point

Peloton announced its third quarter finance results & is borrowing $750 million

Peloton reported disappointing financial results for the third quarter of 2022 and signed a binding commitment letter with JP Morgan and Goldman Sachs to borrow $750 million in 5-year term debt to strengthen its balance sheet. Peloton stock took a dive of 12 percent, falling as much as 15 percent in early trading, but the CEO remains upbeat.

In a letter to shareholders, new Peloton CEO Barry McCarthy opened by saying that turnarounds are hard work, calling it a “full contact sport,” and outlined Peloton’s efforts to get back on course.

Peloton wants 100 million members 

McCarthy, who has led the connected fitness company since early February, says he is focused on stabilizing cash flow, “getting the right people in the right roles,” and growing again, relying on fitness technology and the desire to stay fit.

“We’ve already solved the hardest problem which is finding product/market fit. That begs the question, what’s next? My goal for Peloton is to become a global connected fitness platform with 100 million members. That’s equivalent to roughly half the world’s global gym memberships. It’s a long, long way from where we sit today. But we sit at the epicenter of technology enabled fitness, a long-term secular growth trend. Who doesn’t want to live a healthier, happier, longer life?” McCarthy stated in the letter

Peloton’s CEO says that the interactive fitness company plans to reveal how it will grow in the months and years ahead, calling connected fitness a “strategic choice.” 

“You won’t see us investing in or owning something that doesn’t serve our connected fitness strategy,” McCarthy noted.

McCarthy, who emerged from retirement to lead Peloton in what he referred to as a  “shotgun marriage,” has faced criticism from Blackwells Capital, an investment firm led by Chief Investment Officer Jason Aintabi, who has been urging Peloton’s board to sell the connected fitness company.

McCarthy, however, points out that he has only been leading Peloton for a few months and that the challenges that Peloton faces are ones that the company is addressing. “Better systems. Better decision making. Better execution. We’re working on it,” McCarthy promises.

McCarthy nods to new Head of Supply Chain & BOD member 

“The balance sheet challenge has been managing inventory. We have too much for the current run rate of the business, and that inventory has consumed an enormous amount of cash, more than we expected, which has caused us to rethink our capital structure.” McCarthy stated. 

Andy Rendich, Peloton’s new head of supply chain, and Angel Mendez, Peloton’s new BOD member, will tend to supply chain issues, says McCarthy, who also added that Peloton will likely add other talent to the connected fitness company as it transforms to focusing more on software. 

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Peloton’s new initiatives

The connected fitness company says it plans to broaden its distribution to third party retailers, rethinking the value proposition of its digital app, expanding international markets, and focusing on Fitness-as-a-Service (FaaS). 

The FaaS model, McCarthy explains, is a rental program that combines the cost of connected fitness hardware and Peloton’s All-Access subscription service into one monthly fee. The recent price adjustments look promising, says McCarthy, and may deliver approximately $40 million of incremental revenue monthly.

Peloton debuted the new pricing change last month, in a push to generate recurring revenue and to “reduce barriers to entry.”

On Tuesday’s earnings call, McCarthy shared that despite Peloton’s stock taking a dive, he’s “feeling pretty optimistic” about Peloton’s path ahead.

“I don’t mean to sound pollyanna-ish, but I’m hopeful that someday soon, we’re going to look back on this call as one of the important turning points in the business,” McCarthy said at the close of the earnings call.

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