Peloton CEO promises the company is ‘done’ with layoffs

Peloton CEO Barry McCarthy is an optimist. During the company’s Q1 2023 earnings call, McCarthy said that the company was done with layoffs and that the “ship was turning,” referencing a colorful metaphor he issued during Q4 2022 earnings. Wall Street investors may disagree. Peloton’s stock price fell by about 19 percent this morning after the company announced a weaker-than-expected holiday forecast.

On the product side, McCarthy noted that while customer satisfaction with the recently launched Guide was high, most people don’t know it exists. Meanwhile, the CEO heaped heavy praise on the Peloton Row, claiming that the device “reinvented the category.” He then noted that Row inventory would be constrained this year, even as demand was expected to grow. The company also expects more people will take advantage of Tread Plus refunds, as it recently extended the refund period by another year. Overall, revenue from hardware sales decreased about 60 percent year over year and 31 percent from the last quarter.

McCarthy also says there are plans to relaunch the digital app in 2023 with a “different price value.” Specifically, the app would relaunch with tiered pricing to match a revamped content strategy. McCarthy has been adamant over the past few months about bolstering digital app subscriptions, which have never exceeded 1 million subscribers. This quarter, Peloton ended with 875,000 subscribers, falling 11 percent from Q4. The aim is to boost that to 100 million and gain access to third-party connected fitness platforms, as most app subscribers use Peloton’s content on other fitness equipment.

The financial numbers paint conflicting stories. On one hand, Peloton managed to improve its free cash flow to a loss of $246 million in Q1 from $412 million the previous quarter. Peloton’s monthly churn rate also slightly improved to 1.1 percent, down from 1.4 percent in Q4. Its net loss was also $406 million, compared to the $1.2 billion last quarter. McCarthy also noted that the company was on track to beat his 12-month timeline for turning the company’s financial woes around.

On the other, Peloton’s leadership estimated $700 million to $725 million in revenue going into the holiday season. That’s significantly lower than the $866 million analysts were anticipating. Peloton’s own forecast predicted losses of $110 million to $115 million. Analysts were expecting $108 million. Not helping matters, Peloton’s leadership acknowledged that the current economic climate would be a challenge moving forward. McCarthy also admitted that Peloton’s focus on fixing cash flow had “come at the expense of growth.”

If there’s one “bright” spot, McCarthy insisted that no one else at the company would be losing their jobs. Sort of.

“We are done now, and in my humble opinion, there are no more heads to be taken out of the business,” McCarthy said during the Q&A portion of today’s call. Peloton CFO Liz Coddington immediately jumped in to clarify that some retail employees are still getting the axe as the company closes some of its retail spaces once leases are up. Still, McCarthy was adamant that there was no more to be gained by further layoffs. For context, Peloton recently laid off 500 employees in October in the fourth round of layoffs this year. That was after nixing 2,800 jobs in February, another 570 in July, and 784 in August.