Peloton (PTON) Pedals Higher Following Report Of Another Round Of Layoffs, But Future Remains Murky
3:09 pm Thursday, October 06th, 2022
Peloton’s (PTON) glory days may be far behind it, but the connected fitness company is still searching for answers as it attempts to execute a dramatic turnaround. The company’s latest bid to resuscitate its ailing business includes another round of layoffs. According to the Wall Street Journal, PTON is cutting 12% of its workforce, or about 500 positions, with many of the reductions affecting the marketing department. Unfortunately, job cuts have become commonplace at PTON this year. In total, the company has now issued at least 1,800 layoffs in 2022 in an effort to better align the size of the business with current demand trends.
There probably isn’t much of a surprise factor as it relates to this news since PTON is on a cost-cutting mission. However, what may be catching investors’ attention is CEO Barry McCarthy’s comment that the company has six months to prove if it can survive on its own. In effect, McCarthy is stating that there’s only so much that he can do to save the company. Ultimately, the company’s survival will depend upon whether there’s sufficient enough demand for its products to generate positive cash flow and earnings.
On that note, PTON has made good progress in reducing its cash burn. In 4Q22, free cash flow improved by about $266 mln yr/yr to ($411.9) mln. After significantly reducing its inventory, and outsourcing all of its equipment manufacturing, McCarthy believes that PTON can reach breakeven cash flow on a quarterly basis in 2H23.
The harder part, though, will come on the sales side. The main challenge is that, in the wake of the pandemic, people want to get out of their homes to work out, rather than spend more time in them. This is clearly evidenced by the recent recovery in Planet Fitness (PLNT), which generated revenue growth of 64% and 67% over the past two quarters. Additionally, the pandemic created a massive pull-forward in demand. Many people who were interested in owning a PTON bike or tread have already purchased one.
