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WEF 2022:

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Peloton taking corrective actions to boost profitability, CEO says

Yahoo Finance's Brad Smith and Akiko Fujita discuss Peloton stock's low performance and the actions the company is taking to improve.

Video Transcript


BRAD SMITH: Peloton shares, they are up on the day after declining 24% Thursday following a report of production halts. There you're taking a look at shares today here trying to bounce back after yesterday taking an L. The company later issued preliminary earnings results, $1.14 billion in revenue. That's versus the previously provided guidance of $1.1 billion to $1.2 billion, in that range. The CEO issued a statement, which included moving to a more variable cost structure and identifying reductions in our operating expenses as we build a more focused Peloton moving forward.

Plus, Akiko, also new reporting that Peloton has pushed back opening a new factory. There's a ton to dive into on here, especially given the connected fitness space that saw so much favor over the course of the early months of the pandemic as in-home fitness was really one of those early options and only options as more people were doing everything from home.

But now you've got this continued kind of crossroads that Peloton finds itself at as even when I was looking back at some of the workouts that they've seen for their connected fitness subscriptions and the number of people that have those devices, those workouts, they started to decline actually right as many of those gyms, whether they be Lifetime, whether it be Planet Fitness, or all of the boutique experiences as well, when they started to reopen.

And so it is this larger question of continued coexistence in the face of even more competition that is still yet to come. And I would ask the question, you know, on the bearish comparison here, is this the next Fitbit of the fitness space where you have some of the other compact and converted connected fitness solutions that are going to emerge? I just did a workout last week for NordicTrack's iSelect fitness dumbbells connected to Alexa. So there's going to be even more competition that comes forward in an accelerating fashion.

AKIKO FUJITA: I mean, it's probably too early to say, I would argue, that it is the next Fitbit. There's no question that there was this expectation of demand pulling back as more and more people begin to go back to the gyms. And what we've learned over this last six months or so is that a lot of people are opting for more of a hybrid approach, doing some classes at home, going to the gym on some parts. But yesterday's report wasn't just about pulling back on production. It was about halting production temporarily. And that's why we saw the kind of steep fall in the stock. Now since then, we've gotten a little more color from the company.

And I would point to this. It's not just about the production halt. The company now says, "In the past, we've said that layoffs will 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."

I mean, this line about considering all options, that's certainly not a sign of confidence if you're invested in this company. But I would argue it's also not surprising when you consider the trajectory of this stock specifically. I mean, I know these are separate stories. We're talking about the business structure and then how quickly the stock has run up on the expectation that this type of demand can be maintained. And it simply can't.

I mean, this was-- we're talking about a shutdown where everybody had to work at home. Peloton was in that prime position to do that. They're not there anymore. And they also have some competition.

BRAD SMITH: Right, and it is that question of the repositioning of the products itself. And I think they've done well in thinking through the amount of floor space or just kind of airspace a product takes up in somebody's home or apartment, whatever the case may be. And the Peloton guide was one of the competitive offerings that they put out there to go up against Mirror, which we know Sozzi is just so gung ho about, right? But at the end of the day, I think it's coming back to where they can continue in this strategy, as the CEO has put out there, to have the gross margin improvements, moving towards a more variable cost structure, the CEO John Foley has said as well, and then identifying reductions in operating expenses.

And that reduction in operating expenses can come in the form of a few different things that. It could come in the form of trying to research, develop, and best kind of reimagine what that actual positioning within the home, yet still connected into a Peloton workout looks like in the future too. And so for those operating expenses, that could also impact what we see in the production, which is what we get back to here once again, and what the demand looks like at that point in time.

AKIKO FUJITA: And I feel like we've started to hear a little more chatter again over the last 24 hours about Peloton being a potential acquisition target. You know, we're sort of getting ahead of ourselves, but Apple, one name that we've heard floated around. Do they really need a device to connect everything to? I mean, it's going to be interesting to watch. Because there is a bit of a shakedown happening. And Peloton certainly at least coming out and saying that we're reevaluating everything. And, you know, if you look at where the stock has slid over the last 24 hours or so, sounds like there might be even more downside. But we'll, of course, be watching that one closely.