Peloton finally slams on the brakes

Peloton confirmed a major overhaul Tuesday morning that includes the resignation of CEO and cofounder John Foley, layoffs totaling about 20% of the corporate roster, and winding down a planned $400 million plant announced nearly a year ago. 

Barry McCarthy, a former CFO for Netflix and Spotify, will take over as CEO, while Foley will transition to executive chairman. Peloton’s stock jumped more than 30% on the news as of midday trading Tuesday. 

The changes follow a disastrous 12 months for the fitness company, marred by management mistakes, manufacturing snafus, delivery issues, and employee unrest. Peloton’s stock price has dropped 73% during that time frame, wiping out nearly $40 billion in market value.

The debacle turned Peloton into a COVID cautionary tale, a case of pandemic-fueled ambition gone awry. 

The company, best known for its stationary bikes and subscription-based exercise classes, tried to quickly scale up production after an encouraging spike in sales in 2020, when shut-in customers pivoted to at-home exercise. But demand waned as the world reopened, leaving Peloton overextended and unable to navigate global supply-chain challenges.

“Where the company got over its skis is it built out a cost structure as if COVID was the new normal,” McCarthy told the Wall Street Journal in an article published Tuesday.

The corporate upheaval comes at a perplexing time for Peloton, the subject of multiple sales rumors. Blackwells Capital, an activist investor pushing for Foley’s ouster and exploration of a sale, fueled the speculation last week by Apple, Disney, Sony, and Nike as potential suitors. Subsequent reports indicated Amazon and Nike were sniffing around the company.

But as Protocol’s David Pierce neatly summarized Monday, there’s no clear-cut partner lying in wait. 

Amazon likely makes the most sense for several reasons. Its sprawling logistics apparatus could help alleviate Peloton’s manufacturing issues; it could easily fold Peloton’s subscriptions into its Amazon Prime product; and it would acquire a big brand name for its still-young health and fitness market ambitions.

Peloton offers some neat synergies with Apple and its Fitness+ brand, but Apple typically doesn’t pursue distressed assets and moves warily on the acquisition front. 

Nike could benefit from adding a brand as big as Peloton, but as the Financial Times noted last week, a deal “would reverse a decision (by Nike) to focus on tech software rather than hardware.”

“The question for Amazon, Apple, Nike, and others will be whether they feel they can beat Peloton at its own game, or if it’s worth $10 billion or so to take a shortcut to the top of the market,” Pierce wrote. “If Peloton can turn its fortunes around, it might even have a chance to compete on its own. But it won’t have that chance for long.”

The appointment of McCarthy, whose expertise lies more in building subscription-based growth models than M&A deals, suggests Peloton could remain independent for the foreseeable future. Questions also remain about Foley’s interest in a sale, given that he and other company insiders control about 80% of Peloton’s voting power.

Tuesday’s changes certainly put Peloton on a clearer path. Until the smoke clears on a potential sale, however, its future will remain cloudy.

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Jacob Carpenter

NEWSWORTHY

Regulators stiff Arm. The chip industry’s largest-ever deal died Tuesday, with Nvidia and Arm announcing they will abandon their planned $40 billion merger “because of significant regulatory challenges.” The ill-fated acquisition faced antitrust questions from the outset, with competition advocates and semiconductor industry leaders arguing that California-based Nvidia would gain too much market power if it took control over U.K.-based Arm’s chip technology, used by chip designers across the world. Arm owner SoftBank separately announced plans to proceed with an initial public offering for Arm, which likely will not happen until 2023.

Get that paper. Amazon plans to more than double its maximum base salary for tech and corporate employees, raising the ceiling from $160,000 to $350,000, as the e-commerce giant grapples with attrition amid a tight labor market and competition from rival companies. While it’s not yet clear how many employees will benefit from the increase, the change reflects Amazon’s ongoing issues with staff attrition and pay dissatisfaction, which Insider has documented over the past year. Amazon historically made up for lower base salaries by issuing stock awards to employees, but the company’s share price is virtually unchanged over the past 18 months after nearly a decade of exponential growth.

Pushing in their chips. Many European countries will be able to offer more subsidies to semiconductor manufacturers after the European Union’s executive branch agreed Tuesday to ease bloc-wide rules that curtail government support for the industry, Reuters reported. The change, which comes amid a global chip shortage, reflects the growing ambition of European leaders to take a greater market share of the industry following a multi-decade shift toward Asian countries. Chip makers could gain access to $17 billion in new subsidies by 2030, significantly less than the $52 billion in government support that U.S. lawmakers have included in a semiconductor-related bill under consideration in Congress. 

Pursuing other opportunities. Tech entrepreneur and PayPal co-founder Peter Thiel plans to resign from the board of Facebook parent Meta in May, ending a 17-year run in which he became a close adviser to company CEO Mark Zuckerberg. Bloomberg, citing an unnamed source, reported that Thiel “wanted to avoid being a distraction for Facebook” as he ramps up his support of Republican political candidates ahead of the 2022 midterms. Thiel’s support of former president Donald Trump has drawn internal criticism from Meta employees over the past several years.

FOOD FOR THOUGHT

Selling crypto to Congress. Money talks in Washington, and FTX CEO Sam Bankman-Fried has plenty of it to throw around. The cryptocurrency exchange founder, whose Bahamas-based company is valued at $32 billion, has emerged as a major donor and advocate on Capitol Hill as federal legislators debate blockchain-related regulations, Politico reported Tuesday. Bankman-Fried shelled out more than $5 million for PACs backing President Joe Biden in the 2020 election, and he’s backing a bipartisan slate headed into this November’s midterms.

From the article:

Bankman-Fried and other titans of crypto are working to expand their influence at a critical inflection point in Washington’s relationship with the industry. How to regulate digital asset trading has become a top priority for lawmakers and regulators now that it has grown to become a $1.9 trillion piece of the economy.

A looming question for crypto trading platforms is the extent to which they’ll face a crackdown from the SEC, which has taken an expansive view of its jurisdiction over digital currencies.

IN CASE YOU MISSED IT

New Arm CEO faces a long list of challenges after collapse of Nvidia deal—including an IPO and a fired China head who refuses to leave, by Ian King and Bloomberg

India could have treated Bitcoin earnings as capital gains. Instead, it’s taxing crypto like horse racing, by Biman Mukherji

3 reasons why Netflix can’t win the ‘streaming wars,’ analyst says, by Jonathan Vanian

Learning to code will not save your kids, by Jeremy Kahn

Meet the Yat, the follow-up to NFTs where people invest in emojis, by Chris Morris

This artist is being called NFT royalty and has sold art valued at more than $18 million. Here’s how he did it, by Amiah Taylor

BEFORE YOU GO

The circle of life. Eventually, every renegade has to kiss up to The Man. Even Reddit. As The Financial Times reported Tuesday, the social media company is courting major ad agencies as it looks to cash in on its tech-savvy user base and launch an IPO. It’s a tricky balance for Reddit. The outfit will need to convince risk-averse companies to spend money on its edgier platform, where the company takes a more freewheeling approach to speech and content than some of its social media peers. But Reddit also doesn’t want to alienate its loyal base, some of which prizes the more transgressive approach. Nobody ever said growing up was easy.