Peloton (PTON 3.52%) is in a challenging situation, and its new employee policies regarding its stock and bonuses could be a double-edged sword. In this Motley Fool Live segment from "3-Minute Stock Updates," recorded on July 11, Fool.com contributors Travis Hoium and Ryan Henderson take a closer look at what's ahead for Peloton.
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Travis Hoium: This is the third quarter numbers that I just wanted to put some context too as well. Revenue is down 24 percent. A lot of that was the decline in the company's hardware sales. They had I believe it was a $182 million impairment charge in the first quarter, so basically having a hard time getting people to enter that funnel. If you remember, they acquired a manufacturing facility in the US because they were shipping bikes from Asia, and it just became a logistical nightmare. We're hearing more stories about how costly that was to the business and I would argue how mismanaged it was during the peak days of the pandemic. This is really about a turnaround, and can they do that? This is another company that has not had a lot of releases this quarter to update investors on what's going on.
But a couple of things that we will get a lot of information about, they do have new subscriptions and pricing, lower bike prices. Are they going to be able to bring customers in? We have not gotten some great updates on that. They still do have plans to cut $800 million in operating costs. Then one of the things I think was interesting and could be a trend overall in the technology space is they are offering more cash bonuses this year instead of stock. Then also moving up the vesting period for some of the stock that employees did have. Now, the stock that employees would have been granted would actually be down. So I have to wonder whether they're going to take the stock grant and then just offload it on the market. Is that the idea of that? It's not a great retention tool if that's what you're doing.
But then the shift to more cost payments instead of stock, I think, is notable because now we're going to have more actual cash coming off the balance sheet, as opposed to being able to use stock, which has always been this strange dynamic where it's diluting shareholders, but it isn't actually cash that's being used from operations. So it's kind of a double-edged sword there. That's the angle that they're taking on it seems right now. It still seems like they're in a challenging position, but hopefully we'll see a little bit more stability in their demand over the next couple of weeks here before the second quarter is reported. What do you think, Ryan?
Ryan Henderson: I guess I've got two questions for you. I had heard something about Peloton was repricing some of their stock options. Now you mentioned that the grants will be able to vest early. Does that mean more dilution for outside shareholders? Am I viewing that right?
Travis Hoium: I think that's right. This is going to be something we're going to hear about over and over again this quarter, whether it's in private companies, I think they're going to have even more of a challenge, or public companies. If you think about the companies that have gone public in the last year or two, if you went public let's say at a stock price of $50 and now your stock is trading at $10, every one of those grants or options, if you are giving options, those are potentially years away from being profitable for employees. So employees are going, what incentive do I have to stay? You have to either reprice those, so the [inaudible 00:14:15] price instead of $50, make it $10 now, or you risk losing that as a retention tool for employees.
I wouldn't be surprised if this is one of the tactics that we see used. Disclosures are always a little bit weird on this because companies will report a number and say, here's our stock compensation. But we don't get a lot of breakdown on exactly what those price points are and things like that. But I wouldn't be surprised to see more repricing of options directly so that would be dilutive indirectly with options because they do have to appreciate in value to have any value. But then stock grants specifically are going to be more directly dilutive and, if people are incentivized to sell, could be sold into the market as well. So it's going to be a weird dynamic in those stocks that have fallen a lot because companies want to keep employees. They want employees to want the stock to go up. But at the same time you might have to do some of this repricing, so something to watch.