What happened
Shares of Peloton Interactive (PTON +0.78%) were soaring Tuesday for the second day in a row. The company dumped a heap of news on the market, including plans for an overhaul of the business, complete with a new CEO and president, changes to the board, 2,800 job cuts, and a new manufacturing strategy under which it will abandon its Peloton Output Park project and rely instead on third-party suppliers.
The connected fitness company also released its second-quarter earnings report early, offering guidance that was significantly worse than expected, which showed how urgently it needs to make changes.
The market was initially skeptical about the announcements: The stock was down by as much as 7% in pre-market trading at one point, but after opening flat, it quickly gained momentum and was trading up by 29% as of 1:17 p.m. ET.
Image source: Peloton.
So what
The biggest piece of news for the company seemed to be that co-founder John Foley would step down from the CEO position and take the role of executive chair, while William Lynch would exit his role as company president. The company named Barry McCarthy as its new CEO and president.
McCarthy has served as CFO at both Spotify and Netflix, two of the biggest subscription businesses in the world, so he seems like a natural fit for Peloton, another content-based subscription business.
"I'm confident that Barry is the right leader to take the company into its next phase of growth," Foley said. "He's not only recognized as an expert in running subscription business models and helping category-leading digital streaming companies flourish, but he has also had tremendous success in partnering with founder CEOs at other brands."
In an effort to reduce the company's cost base, Peloton said it would cut 2,800 jobs and shift to third-party supply chain relationships, moving to a more variable cost structure in a plan it expects to generate $800 million in annual cost savings and drive consistent profitability.
Finally, the company also released its full second-quarter earnings report. It had already announced most of its key Q2 numbers in a preliminary report, but the guidance element was new. For the current quarter, the company expects revenue to fall by roughly 20% year over year to the $950 million to $1 billion range, and it slashed its full-year forecasts across the board.
Now what
Investors seemed to be willing to overlook the weak guidance as the company is putting its turnaround plan in place. The cost cuts are necessary, and the business should return to profitability once it trims costs, as the subscription side of the business is solidly profitable.
By bidding the stock higher Tuesday, the market is giving Peloton a clear vote of confidence as it takes the initial steps in its turnaround effort.
