Peloton shares plunge, CEO admits company ‘thinly capitalized’

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Peloton will need to pedal harder to get out of this hole.

The exercise-bike company’s shares plunged as much as 20% on Tuesday after it slashed its sales guidance, reported a deeper loss than Wall Street had expected and said it’s low on cash.

Chief executive Barry McCarthy told investors on Tuesday that Peloton is “thinly capitalized for a business of our scale.” The company had $879 million in cash left on its balance sheet at the end of the most recent quarter.

The New York based company is struggling to recover from a series of miscalculations by former founder and CEO, John Foley, who was ousted in February for saddling the company with among other things a pile of excess inventory that has been hard to sell since demand for at-home exercise equipment has lessened as lockdowns ended.

Peloton’s founder and former CEO, John Foley.
AP

McCarthy, who is the former chief financial officer of Spotify and Netflix, is shepherding Peloton through a turnaround that has not yet taken hold. The company has laid off hundreds of workers, slashed the prices on its equipment and subscriptions in a quest to boost customers.

Turnarounds are hard work,” McCarthy wrote in a letter to shareholders. “It’s intellectually challenging, emotionally draining, physically exhausting, and all consuming.”

Peloton reported a shocking net loss of $757.1 million compared with analysts’ estimates of $132 million loss and with a $8.6 million loss from a year ago.

Peloton CEO Barry McCarthy.
Peloton named Barry McCarthy CEO in February.
Bloomberg via Getty Images

Revenue sank to $964 million in the most recent quarter compared with $1.3 billion a year ago.

Peloton expects to report $675 million to $700 million in sales in the fourth quarter, which is well below analysts’ average estimate of $821 million, blaming the shortfall on “softer demand” and recent discounting.

To shore up its balance sheet, Peloton inked a five-year deal with JPMorgan Chase Co. and Goldman Sach Group to borrow $750 million.

A Peloton bike.
Peloton has lowered the price of its bikes and its subscriptions to lure new customers.
Bloomberg via Getty Images

Peloton’s shares have plummeted by more than 60% this year.

The company also fell out of favor over safety issues that resulted in a massive recall of its treadmills after young children were injured by the equipment and a child died.

At the time Foley, denied that there was a problem with the equipment.

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