Consumer Products

Peloton's Change Superpower

New Peloton Interactive Inc. (NASDAQ: PTON) CEO Barry McCarthy sent a long-winded letter to his staff to explain his plans to repair the broken company. He said Peloton would increase prices for some of its products. The approach is hard to explain since so few people want these products compared to a year ago. McCarthy wants customers to pay more for unpopular exercise machines.

McCarthy also apologized to the people he fired. As he said goodbye, he pointed out that change is not easy.

McCarthy said the change has to become one of Peloton’s “superpowers.” It would be better to have said his own superpower management will pull Peloton out of a flat spin.

The stock market has dumped on McCarthy’s plan and has been dumping on his plans since he joined the Peloton in February. The stock is off 62% this year. After a brief rally in the past several days, the stock has flattened. McCarthy’s complex plans have not drawn outside support.

The company’s most severe problem was not mentioned in the letter. The demand for Peloton products has collapsed. Management will release new quarterly results soon. They are unlikely to be much different from the most recently released report, when revenue dropped by 24% year over year to $964 million. Peloton lost $757 million. In his recent employee letter, McCarthy said the company was in a cash crunch but probably would secure a loan for $750 million. It is a safe bet the loan will carry a very high interest rate, which will put more pressure on the turnaround.

McCarthy has said Peloton cannot cut its way to profitability. In the meantime, his cuts have been tremendous. His repositioning of Peloton’s products has not been. It is hard to find evidence that any decision will increase product demand. People have gotten tired of Peloton equipment. Moreover, people who wanted one of its machines probably already have one.

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