(BFM Bourse) – The manufacturer of connected exercise bikes, a stock market star in favor of the confinements of the year 2020, lost up to 80% of its value with the lifting of restrictions and a series of hard blows upsetting its promotional activities. Considering that Peloton has squandered an incredible opportunity, activist fund Blackwells is calling for the departure of CEO and founder John Foley.
It was one of the main winners of the pandemic on the stock market: between the low point of the markets in March 2020 and the beginning of 2021, the rating of Peloton Interactive rose by more than 860% on the American Nasdaq. Founded in 2012, with a start via the Kickstarter crowdfunding site the following year, the firm saw its sales increase significantly during the first year of the Covid-19 pandemic. Faced with the strong restrictions on the possibilities of outdoor sports and a fortiori indoors, consumers have indeed turned to Peloton’s training devices, in particular its exercise bikes but also its treadmills. But production difficulties and delivery delays led to a number of cancellations, forcing the group to invest $100 million in an attempt to reduce deadlines.
The group then had to recognize a more marked slowdown in sales than expected forced it to significantly reduce its sales forecasts for 2021.
Peloton also found itself under fire in December after an episode of ‘Sex and the city’ featured the death of a character after a peloton bike session – the company then tried to take the counter- foot by an advertising campaign based on the actor embodying the character in question… But had to give it up when the actor was meanwhile accused of sexual assault (the episode was put in abyme in another series, trillion).
Presenting himself as a “significant” shareholder of Peloton, Blackwells Capital chief investment officer Jason Aintabi chose to publicly express his “serious concerns” about the company’s performance on Monday, and ” failures” of his leadership.
“We believe the pandemic has presented Peloton with a tremendous and unexpected opportunity to accelerate consumer adoption of its leading products and drive business performance and shareholder value creation. The stock is now trading below the IPO price and down more than 80% from its peak, it is clear that the company, executives and board have squandered this opportunity,” asserts the bottom.
For Blackwells, it’s particularly remarkable that the company is now “worse today than it was before the pandemic, with high fixed costs, excessive inventory, an apathetic strategy, employees discouraged and thousands of disgruntled shareholders”. The course of Peloton has done less well over the last twelve months than all of the other values comprising the Nasdaq 100. “Mr. Foley should be immediately removed from his position as CEO”, notes the fund.
Addressing those on the board, the manager continued: “We certainly understand that Mr. Foley regards Peloton as ‘his’ company and you, the directors, as ‘his’ board. influence and has outsized voting rights because of his status as a founder. Perhaps some of you – friends of Mr. Foley for many years – feel compelled to do as he wants. But the law and the market expect more. You are not here to uphold Mr. Foley’s dignity or pride. Your role as directors is not to shield him from embarrassment or shield him from Rather, you are in charge of supervising the management and ensuring that the best possible leader is at the helm of the company”.
Blackwells accuses John Foley of misleading investors by saying the company did not need additional capital, just weeks before a $1 billion capital raise. The fund also rebukes the hesitations on the pricing strategy, leading to the confusion of consumers, the market and analysts, the reversals on the roadmap of the deployments that the founder had nevertheless set himself at the start, as well as a too slow to cooperate with the Consumer Product Safety Commission despite the sale of a product that injured at least 29 children.
The fund also notes the significant investments made to increase manufacturing capacity – before stopping the manufacture of several products for several months, insufficient financial control in the eyes of the auditor, who had to issue a reservation, and the signing of a 20-year lease for a sprawling office in New York City, the country’s most expensive office and job market, “apparently because he loves living there and owns a recently acquired $55 million vacation home nearby “.
Because, while the shareholders have collectively lost nearly 40 billion dollars on the title, John Foley on the other hand has “sold shares regularly and on several occasions, pocketing more than 115 million dollars”, continues the director of investments of Blackwells .
“No board of directors could, on the basis of reasonable judgment, leave Mr. Foley in charge of Peloton,” concludes the fund, which believes the best option is to put the company up for sale. Peloton still has a large and loyal customer base, skilled employees, brilliant technology and content. On its own, however, Peloton will still not be able to fully seize the opportunities that its assets and brand would present, especially now with a stressed balance sheet.” On the other hand, the firm is an attractive target for a large number of companies in the new technologies, streaming, metaverse or sports sectors -Blackwells cites Apple, Disney, Sony or even Nike- which would thus find a relay to settle in consumers’ homes, around their health or via their screens.
Guillaume Bayre – ©2022 BFM Bourse