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Peloton Stock Bounces After CEO Disputes Report Of Layoffs, Production Halts

Tyler Durden's Photo
by Tyler Durden
Friday, Jan 21, 2022 - 01:58 AM

Update (2057ET): Shares in Peloton bounced after hours following a statement from CEO John Foley, who refuted reports of a complete production halt and layoffs, CNBC reports.

"This week, we’ve experienced leaks containing confidential information that have led to a flurry of speculative articles in the press," wrote Foley in a letter sent to "the Peloton Team" and posted publicly. "The information the media has obtained is incomplete, out of context, and not reflective of Peloton’s strategy."

Foley added that they company had "identified a leaker, and we are moving forward with the appropriate legal action."

He called reports that the company had halted the production of stationary bicycle and treadmills "false," adding that layoffs were not a sure thing at this point.

"We are still in the process of considering all options as part of our efforts to make our business more flexible," wrote Foley, who said that the company is "resetting our production levels for sustainable growth."

Read the full letter below:

Team,

We have always done our best to share news with you all first, before sharing with the public. This week, we've experienced leaks containing confidential information that have led to a flurry of speculative articles in the press. The information the media has obtained is incomplete, out of context, and not reflective of Peloton's strategy. It has saddened me to know you read these things without the clarity and context that you deserve.

Before I go on, I want all of you to know that we have identified a leaker, and we are moving forward with the appropriate legal action.

But moving forward, I want to take a moment to talk about some of the changes with you directly.

As a public company that is in a pre-earnings "Quiet Period" we are limited in what information we can share. However, we issued a pre-earnings press release earlier this evening about our preliminary Q2 results, in order to offer an initial and more accurate picture of our business performance.

As you have heard me and other leaders say over the past few months, we are continuing to invest in our growth, but we also need to review our cost structure to ensure we set ourselves up for continued success, while never losing sight of the important role we play in helping our 6.2+ million Members lead healthier, happier lives.

What this means for our team right now

In the past, we've said layoffs would be the absolute last lever we would ever hope to pull. However, we now need to evaluate our organization structure and size of our team, with the utmost care and compassion. And we are still in the process of considering all options as part of our efforts to make our business more flexible.

This team is made up of some of the smartest, most passionate, hard-working and KIND people I have ever met. You have each painted your masterpiece at Peloton in your own way, and your contributions matter. They always have, and they always will.

I am SO proud of everything we have accomplished together, and it pains me we are faced with these tough decisions. | know this is difficult, and I want to thank you for your patience as we work through these times together.

Rumors that we are halting all production of bikes and Treads are false

Notably, we've found ourselves in the middle of a once-in-a-hundred-year event with the COVID-19 pandemic, and what we anticipated would happen over the course of three years happened in months during 2020, and into 2021.

We worked quickly and diligently to meet the demand head-on at a time when the world really needed us, in large part thanks to how hard you worked every day. We feel good about right-sizing our production, and, as we evolve to more seasonal demand curves, we are resetting our production levels for sustainable growth.

Connected Fitness is here to stay

This past quarter, our churn rate was 0.79%. This means that our Members are sticking with us, again thanks to your brilliance and continued innovation. Connected fitness provides the convenience people need to stay active and centered and will continue to be a key part of the future of fitness. In fact, just a few days ago, we recorded our highest ever number of daily workouts — over 2.9M workouts.

I want to acknowledge that this does not answer all of the questions I am sure many of you have right now. But, I did want to share what we could at this time. I know there is a lot of noise and anxiety in our environment right now, which is why I wanted to take this moment to provide some additional context for you all as we navigate the next few weeks together.

*  *  *

Update (1830ET): After a catastrophic collapse in the company's share price today - back below its IPO price - it appears Peloton is attempting to kitchen-sink things as it has just pre-announced revenue (miss), subs (miss), and EBITDA (beat but still a huge loss):

  • Prelim revenue about $1.14 billion, estimate $1.16 billion 

  • Prelim connected fitness subscribers about 2.77 million, estimate 2.81 million

  • Prelim adjusted Ebitda loss $260 million to $270 million, estimate loss $332.6 million 

John Foley, co-founder and CEO, whose net worth slipped to just $350 million today - well off the billionaires ranks, confirmed the actions that CNBC had reported earlier in the day...

"As we discussed last quarter, we are taking significant corrective actions to improve our profitability outlook and optimize our costs across the company.

This includes gross margin improvements, moving to a more variable cost structure, and identifying reductions in our operating expenses as we build a more focused Peloton moving forward.  

This work is still underway and we expect to have more details to share when we report earnings on February 8, 2022."

For a brief moment, PTON shares jumped on this release, but it did not last...

*  *  *

As we detailed earlier, Peloton Interactive, Inc. shares crashed more than 24% after CNBC reported internal documents from the company that said production of its bikes and treadmills would be temporarily halted due to souring demand. Shares have been halted and reopened several times...

...and now trade at a significant discount versus the IPO price of $29...

We suspect the chaps at Viking Global are a little saddle-sore this morning...

In a confidential presentation dated Jan. 10, the company (known for slapping an iPad on a stationary bike and charging thousands of dollars) said demand for its bikes and treadmill had faced a "significant reduction" worldwide.

CNBC explains more about Peloton's upcoming production halts: 

Peloton plans to pause Bike production for two months, from February to March, the documents show. It already halted production of its more expensive Bike+ in December and will do so until June. It won't manufacture its Tread treadmill machine for six weeks, beginning next month. And it doesn't anticipate producing any Tread+ machines in fiscal 2022, according to the documents. Peloton had previously halted Tread+ production after a safety recall last year.

Peloton has completely misjudged demand as it's stuck with thousands of cycles and treadmills sitting in warehouses across the country. 

We've been reporting on the Peloton story for the last week, citing multiple reports of storm clouds gathering over the company. The first was a notice from the company, informing new customers it would charge hundreds of dollars in fees for delivery and setup of bikes and treadmills. The second piece of news is the company working with management consulting group McKinsey & Co. to analyze cost structure and potentially slash jobs. 

Meanwhile, Peloton executives and insiders unloaded hundreds of millions of dollars in shares in prearranged 10b5-1 plans with an average cost basis well over $100. Insider selling stopped after a terrible earnings release in November. 

Insiders knew all long this was an unsustainable business (hence why they dumped into gullible retail). 

The recent release of the new Peloton Bike+ has yet to save the company. Maybe because the bike costs a whopping $2,500. 

As we've noted before, the company needs to quickly expand into the metaverse and engineer a short squeeze by saying it's coming out with a VR cycling product.

... or maybe this. 

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