Blackwells Capital LLC, an activist investor with a stake in interactive fitness company Peloton Interactive Inc. (PTON, Financial), is publicly calling for the company to fire its CEO John Foley and explore a sale. Peloton’s stock has fallen about 80% from its all-time high due to a combination of an overinflated stock price and overproduction of its products. The matter was made public by Blackwells itself with the release of a letter this morning.
The Wall Street Journal reported yesterday that Blackwells had acquired a "significant stake" in Peloton and was preparing to push for the changes. “Once a pandemic darling as homebound customers ordered its exercise equipment that pairs with virtual classes, Peloton’s stock as of Friday was trading below its September 2019 initial-public-offering price of $29 a share. On Monday morning, Peloton shares were up over 5%,” the Journal reported.
Last Thursday, CNBC reported that the company would be stopping production of its bikes due to lower-than-expected consumer demand, resulting in Peloton’s stock price dropping by another 24%.
Foley said in a statement that Peloton is “taking significant corrective actions to improve our profitability outlook and optimize our costs” and that additional information would be forthcoming on Feb. 8.
Peloton shares saw an upturn of 12% on Friday, ending the session at $27.06 for a market cap of nearly $9 billion, as value-focused investors who believe in the company's long-term potential rushed to buy shares. At its all-time high around a year ago, the market cap reached $50 billion.”
The letter from Blackwells, penned by the firm's Chief Investment Officer Jason Aintabi and addressed to Peloton’s board of directors, expressed “our grave concerns about the performance and direction of the Company, and the ongoing failures of its leadership team… With the stock now trading below the IPO price, and down more than 80% from its high, it is clear that the Company, the executives and the Board have squandered this opportunity.”
The letter continues, "Remarkably, the Company is on worse footing today than it was prior to the pandemic, with high fixed costs, excessive inventory, a listless strategy, dispirited employees and thousands of disgruntled shareholders. And no wonder, the latter, given that Peloton underperformed every other company in the Nasdaq 100 over the last twelve months. Mr. Foley must be held accountable for his repeated failures to effectively lead Peloton, which include:
- Misleading Peloton investors that the Company did not need additional capital, just weeks before issuing $1 billion of equity;
- Vacillating on pricing strategy, leading to consumer, market and analyst confusion;
- Upending the product roadmap he himself authored, delaying rollouts and missing deadlines;
- Being initially reluctant to work with the Consumer Product Safety Commission despite selling a product that injured at least 29 children;
- Demonstrating a repeated inability to forecast consumer demand, churn, and product returns – to the point of removing related metrics from the Company’s public guidance;
- Committing to a 300,000 square foot, 20-year lease for office space in New York City, the most expensive office and labor market in the country, seemingly because he enjoys living there (and owns a newly-acquired $55 million vacation home nearby);
- Making significant capital investments to expand manufacturing capability only to then shut down manufacturing for multiple products for many months;
- Failing to ensure that the Company had effective internal controls over financial reporting, leading to a warning from his auditors;
- Hiring his wife as a key executive; and
- Leading a company that received the worst possible score for environmental disclosure and governance risk, and nearly the worst possible score for social and human rights disclosure, from a respected proxy advisory and governance firm."
“All the while,” the letter added, “shareholders have lost nearly $40 billion in wealth. Mr. Foley, in contrast, has sold stock regularly and repeatedly, reaping more than $115 million in proceeds.”
