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It may not be physically possible to turn around on a stationary bike, but Peloton has found a way to do it.
The struggling fitness equipment maker announced on Tuesday that it would no longer build bikes and treadmills, outsourcing the task to one of its major suppliers. It’s a surprising reversal that comes less than a year after Peloton opened and since canceled a $400 million manufacturing facility in Ohio.
spin their wheels
Peloton has traditionally split manufacturing between partner suppliers and its own facilities, which notably included a Taiwanese facility it acquired for $45 million in 2019. But the company’s traditions have gone this year – Peloton co-founder John Foley, resigned under activist pressure in February, the company laid off 3,000 employees and a 24% drop in sales to $964 million in the last quarter cemented its first year-over-year revenue decline since its IPO in 2019.
Peloton’s new CEO, Barry McCarthy, has previously laid out strategies to turn around the company’s operations and reduce reliance on hardware revenue, which became obsolete after gyms reopened. A big part of those plans involve doubling down on the company’s software and marketing its exercise app independently of the hardware. The decision to outsource manufacturing, meanwhile, could help stabilize cash flow issues:
- After announcing a quarterly loss of $757 million in May, Peloton had only $879 million in unrestricted cash and cash equivalents, which McCarthy said left it “thinly capitalized.” The company has since raised $750 million in new debt and plans to cut $800 million in annual costs by 2024 – by outsourcing most production to Taiwanese manufacturer Rexon Industrial, that will help.
- “We’re not going back to anything but partnered manufacturing,” Andrew Rendich, chief supply chain officer, told Bloomberg. “It allows us to ramp up and down based on capacity and demand.” It’s a valid point: Peloton’s inventory, made up almost entirely of finished goods stored in warehouses, hit $1.4 billion on the company’s balance sheet last quarter, up from $937 million a year earlier. .
Fortune unknown: According to a Financial Times report from last year, in October 2020, Foley told a client event hosted by Goldman Sachs that Peloton would become “one of the few $1 trillion companies.” Today, its stock is below $9 per share and its $3 billion valuation pales in comparison to a peak of nearly $50 billion in 2020.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.