December 5, 2022

After a series of major execution missteps, Peloton (PTON) has a new activist investor knocking down its doors. 

In a scathing new letter released on Monday, activist Blackwells Capital — which reportedly has amassed a less than 5% stake in the company — demanded Chairman, founder and CEO John Foley be immediately fired. 

“Mr. Foley must be held accountable for his repeated failures to effectively lead Peloton,” Blackwells chief investment officer Jason Aintabi wrote in the letter. Blackwells contends Peloton should put itself up for sale, highlighting Apple, Nike, Sony and Disney as potential suitors. 

Here is Blackwell’s list of grievances against Foley:

  • “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

  • 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.”

A Peloton spokeswoman declined to comment to Yahoo Finance about the Blackwells letter.

Peloton stock plunges 24% after report of production halt – dropping shares below the Initial Public Offering (IPO) price for the first time in two years. – File Photo by: zz/STRF/STAR MAX/IPx 2021 4/23/21 Peloton exercise equipment is seen on April 23, 2021 at a gym in Downtown Manhattan, New York City. (NYC)

Shares of Peloton crashed 24% last Thursday after a CNBC report that the struggling fitness company would temporarily halt production of its bikes and treadmills due to sluggish consumer demand. The company will reportedly stop producing its bikes for two months and treadmills for six weeks.

Peloton refuted the report, saying it hasn’t halted all production. It also pre-announced quarterly results, which showed a miss on the number of subscribers added.

Shares are now down 24% in January and lower by 83% in the past year. 

This comes in the wake of bad headlines from a product placement in the new “Sex and the City” reboot. One of the show’s lead characters, Mr. Big, suffers a heart attack and dies after a Peloton bike ride at the end of its premiere episode. Then most recently on Sunday night, the company was featured negatively in yet another hit show (heads up, spoiler alert) — in the premiere episode of season six of Showtime’s “Billions” a central character in the drama suffers a heart attack from riding a Peloton bike and survives.

Earlier, Peloton’s stock crashed more than 30% on Nov. 5 after the company said that connected fitness subscribers of 2.49 million was roughly in-line with analyst estimates. The number of workouts on the platform trended lower for the second consecutive quarter. Sales fell well short of analyst estimates, and the company posted a wider loss than expected.

Peloton also slashed its full-fiscal year outlook.

More bad news could be right around the corner: Peloton’s earnings release is on Feb. 8.

“We expect that guidance, if given, will be kitchen-sinked at this point and await more color on these various news items on the call,” said Macquarie analyst Paul Golding, who rates Peloton at Outperform with an $85 price target, which assumes 254% upside from current price levels.

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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