An activist is pushing Peloton to fire its chief executive officer immediately and consider a sale as its share price has plummeted.
Blackwells Capital, which has a stake of less than 5% in Peloton, believes the company could be an attractive acquisition target for larger technology or fitness-oriented companies, such as Apple or Nike, the firm said Monday in a letter addressed to Peloton’s board.
Blackwells is arguing that Peloton is weaker today than before the Covid-19 pandemic. The firm places much of the blame on CEO John Foley, who is also chairman.
Among a laundry list of “failures,” Blackwells said that Foley has mislead investors regarding the company’s need for capital; he was initially reluctant to work with the Consumer Product Safety Commission on a widespread treadmill recall; he hired his wife as a key executive; and he has repeatedly failed to forecast consumer demand, churn and product returns.
Blackwells also pointed to low internal morale, saying Peloton employees are “dispirited” as information has been leaking out to the media.
“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,” Blackwells said.
Peloton shares fell more than 2% in premarket trading, after closing Friday up 11.7%.
A representative from Peloton didn’t immediately respond to a request for comment. Foley also didn’t return a request for comment.
It will take significant pressure from other shareholders to make any change at the company. Foley and other insiders have super-voting Class B shares, which gave them control over 80% of Peloton’s voting power as of Sept. 30, according to a proxy filing.
Peloton’s stock is now trading below its September 2019 initial public offering price of $29. It closed Friday at $27.06, giving the company a market cap of $8.8 billion. Roughly a year ago, Peloton’s market value topped out at nearly $50 billion.
This past week, CNBC reported that the company is looking for ways to reset its production levels and cut costs, including the possiblity of layoffs.
In response, Foley said in a memo to workers that Peloton must “right-size” its inventory. He said Peloton is considering the job cuts in order to be a more flexible business.
On Thursday evening, the company reported preliminary second-quarter revenue of $1.14 billion and said it ended the quarter with 2.77 million subscribers.
“We are taking significant corrective actions to improve our profitability outlook and optimize our costs across the company,” said Foley, in a statement along with the second-quarter figures.
Blackwells is also critical of critical of Peloton’s inconsistent pricing and manufacturing strategies.
At the end of this month, Peloton will begin charging customers hundreds of dollars more in setup and delivery fees for its Bike and Tread, blaming historic inflation and heightened supply chain expenses. Just last year, Peloton had cut the price of its Bike by about 20%.
The activist also called attention to the fact that Foley has been regularly selling stock, according to SEC filings, reaping more than $115 million in proceeds.
Read the full letter from Blackwells Capital here.
