It has been a difficult last year for fitness-tech firm Peloton, with hardware recalls, underwhelming financial results, and a slide in the publicly-listed company’s market cap from its peak of $49.27bn in January 2021 to $12.31bn at the time of writing. A recent announcement that the company was ‘right-sizing’ production and considering layoffs was followed by calls for CEO John Foley to step down.
Now he is doing just that. Well, Foley is stepping aside to become Peloton’s executive chair, with his replacement as CEO a familiar face to the music industry. Barry McCarthy, formerly chief financial officer of Spotify – and still a director of that company – is Peloton’s new CEO and president. Before Spotify, McCarthy was CFO at Netflix, and Foley cited his “tremendous success in partnering with founder CEOs at other brands” as key to his appointment at Peloton.
McCarthy talked up the “enormous potential” of Peloton, but he is joining at a tough moment for the company. Alongside his appointment, it announced plans to save at least $800m a year through a restructuring program, including plans to – and this is one for the textbooks on new ways to describe layoffs – “right-size the organisation by enacting a workforce reduction”. Around 2,800 staff will go, including 20% of Peloton’s corporate employees.
All this was announced alongside Peloton’s financial results for the final quarter of 2021 (its fiscal Q2), which showed the company ending 2021 with just under 2.8m connected fitness subscriptions – up 66% year-on-year – with revenues up by 6% to $1.13bn. That sounds good, but Peloton admitted that sales of its hardware had fallen – revenues for that segment of the business were down 8% year-on-year. The company posted a net loss of $439.4m last quarter, compared to a net profit of $63.6m a year before.
Peloton has become an important partner for the music industry in recent years, after a bumpy start with lawsuits from publishers. It’s important not necessarily for the licensing revenues that it is paying rightsholders, but for its role as a flagship example for other fitness-tech firms – an increasingly crowded sector – of how licensed music works for this kind of service.
Peloton members took more than 5m of its ‘Artist Series’ classes last quarter – up more than 50% quarter-on-quarter, buoyed by new workouts based on the likes of Beyoncé and Queen. Success for Peloton is important for music rightsholders, because they can point to it as the model to follow for emerging fitness-tech startups too.
They will be hoping McCarthy can steer (or should that be pedal?) the company through its current bumpy terrain. Judging by yesterday’s near-$2.5bn jump in Peloton’s market cap, investors are hopeful too.
There is also the matter of his previous employer to consider. Peloton’s plunge in value has sparked talk of the company becoming an acquisition target for bigger fish in the tech world who are interested in fitness: Apple, Amazon and more. It’s very over-simplistic to assume that Spotify could shoot to the top of that list of potential buyers just because Peloton’s CEO used to work there.
But… if Peloton’s future path does lead to an acquisition, Spotify will at least have every opportunity to be involved. In the meantime, it’s reasonable to suggest that the two companies’ existing partnership, focused on streaming playlists, has the potential to deepen.
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