CBS News
Peloton, once hailed as the future of fitness, is now sucking wind. Here’s why.
Connected fitness company Peloton, known for its tech-enabled stationary bikes and treadmills, has cycled through yet another chief executive.
On Thursday, the beleaguered company announced Peloton CEO Barry McCarthy is stepping down from his roles as company CEO, president and board director. He will be succeeded by interim co-CEOs Karen Boone and Chris Bruzzo, both Peloton board members. Peloton also announced it is cutting 15% of its staff — or 400 employees — as it tries to trim costs.
The job cuts mark the fifth time Peloton has reduced its headcount since the company peaked in 2021. As the company struggles to regain its stronghold in the fitness industry and among consumers, questions are being raised about what the future has in store for the formerly red-hot fitness fad.
“Hard as the decision has been to make additional headcount cuts, Peloton simply had no other way to bring its spending in line with its revenue,” McCarthy said in a statement announcing his departure Thursday. He added that the move was necessary as the company prioritizes “the necessary task of successfully refinancing its debt.”
Based in New York, Peloton was among the companies that were well-positioned during the COVID-19 pandemic, benefitting tremendously from lockdown policies that kept Americans isolated indoors. At its height, it was valued at $50 billion, and had long waitlists for its equipment.
With the fate of crowded gyms and fitness studios uncertain at best, it appeared during the pandemic that the future of fitness would be in-home equipment.
Peloton’s sales surged, and the company couldn’t keep up with customer demand. That is until 2021, when restrictions eased and gyms and fitness studios reopened. Peloton, which had funneled money into meeting the mountain of unprecedented consumer demand, appeared to be caught flat-footed.
Still recovering from COVID
Eric Koester, adjunct professor at Georgetown University’s McDonough School of Business, described Peloton as a “company that is still trying to find itself post-COVID,” adding that it’s eventual new CEO will likely take one of two tacks.
“A company that hit those heights and came back to earth now has to decide how to pivot,” Koester told CBS MoneyWatch.
That could mean either focusing on developing new in-home fitness products and attacking the traditional gym business industry, or focusing on embracing its existing customer base and capitalizing on their devotion to the brand.
“The company has rabid fans, and maybe the company crossed the chasm into the mass market too hard and not everyone was a believer,” Koester said.
On Thursday, interim co-CEO Bruzzo blamed flagging sales on consumers continuing to adjust to post-pandemic life.”We are still dealing with the whiplash, the normalizing that occurred post-COVID,” he said on a call with investors.
Faced with cash-flow issues, numerous defective product recalls, and a dwindling subscriber base, it seems Pelaton has failed to capitalize on the unsolicited boost the unprecedented event of a global pandemic, provided it with. How is a company that was recently hugely popular among both consumers and investors now floundering?
A lifetime’s worth of demand
One argument is that while the pandemic caused demand for Peloton’s fancy fitness machines to skyrocket, the sudden explosion in consumer interest actually hurt the company.
“Some people believe the pandemic was the best thing to happen to Peloton, but I believe it was the worst,” BMO Capital Markets analyst Simeon Siegel told CBS MoneyWatch.
That’s because what was somewhat of a niche, luxury fitness company with limited appeal, quite suddenly, entered the zeitgeist and became a symbol of the lockdown phase.
“It was a really great idea with a very strong following and a great community, that was propelled onto the big stage and basically pulled forward a lifetime’s worth of demand,” Siegel said.
In Siegel’s view, the company mistook the fleeting pandemic-era demand for transformative growth that would be long-lasting.
“What happened was the pandemic created the perfect environment for people to want to buy a Peloton,” Siegel said. To be sure, some consumers who were drawn to Peloton during the pandemic may have since given up on fitness altogether.
Rockstar moment
Had the pandemic never occurred, Peloton might not be as well-known as it is today, but it would likely be a company “with a fairly steady growth rate and incredibly loyal fanbase that pays a profitable monthly fee,” Siegel said. “It would be a smaller, healthier business that never reached that rockstar moment.”
BNB Paribas managing editor and senior equity analyst Laurent Vasilescu said the company has had plenty of time to reposition itself post-pandemic, but failed to do so under McCarthy’s leadership.
“I think he tried to do too many things too fast and didn’t really hone in on just the core business. I don’t have an answer for them; I don’t know where they go from here,” Vasilescu said. “But I think it’s just going to become a smaller company to the point that one day you’re not going to care.”
Roger Carstens, the Biden administration’s top official for freeing Americans held overseas, on Friday arrived in Damascus, Syria, for a high-risk mission: making the first known face-to-face contact with the caretaker government and asking for help finding missing American journalist Austin Tice.
Tice was kidnapped in Syria 12 years ago during the civil war and brutal reign of now-deposed Syrian dictator Bashar al-Assad. For years, U.S. officials have said they do not know with certainty whether Tice is still alive, where he is being held or by whom.
The State Department’s top diplomat for the Middle East, Barbara Leaf, assistant secretary of state for Near Eastern Affairs, accompanied Carstens to Damascus as a gesture of broader outreach to Hay’at Tahrir al-Sham, known as HTS, the rebel group that recently overthrew Assad’s regime and is emerging as a leading power.
Near East Senior Adviser Daniel Rubinstein was also with the delegation. They are the first American diplomats to visit Damascus in over a decade, according to a State Department spokesperson.
They plan to meet with HTS representatives to discuss transition principles endorsed by the U.S. and regional partners in Aqaba, Jordan, the spokesperson said. Secretary of State Antony Blinken traveled to Aqaba last week to meet with Middle East leaders and discuss the situation in Syria.
While finding and freeing Tice and other American citizens who disappeared under the Assad regime is the ultimate goal, U.S. officials are downplaying expectations of a breakthrough on this trip. Multiple sources told CBS News that Carstens and Leaf’s intent is to convey U.S. interests to senior HTS leaders, and learn anything they can about Tice.
Rubinstein will lead the U.S. diplomacy in Syria, engaging directly with the Syrian people and key parties in Syria, the State Department spokesperson added.
Diplomatic outreach to HTS comes in a volatile, war-torn region at an uncertain moment. Two sources even compared the potential danger to the expeditionary diplomacy practiced by the late U.S. Ambassador Christopher Stevens, who led outreach to rebels in Benghazi, Libya, in 2012 and was killed in a terrorist attack on a U.S. diplomatic compound and intelligence post.
U.S. special operations forces known as JSOC provided security for the delegation as they traveled by vehicle across the Jordanian border and on the road to Damascus. The convoy was given assurances by HTS that it would be granted safe passage while in Syria, but there remains a threat of attacks by other terrorist groups, including ISIS.
CBS News withheld publication of this story for security concerns at the State Department’s request.
Sending high-level American diplomats to Damascus represents a significant step in reopening U.S.-Syria relations following the fall of the Assad regime less than two weeks ago. Operations at the U.S. embassy in Damascus have been suspended since 2012, shortly after the Assad regime brutally repressed an uprising that became a 14-year civil war and spawned 13 million Syrians to flee the country in one of the largest humanitarian disasters in the world.
The U.S. formally designated HTS, which had ties to al Qaeda, as a foreign terrorist organization in 2018. Its leader, Mohammed al Jolani, was designated as a terrorist by the US in 2013 and prior to that served time in a US prison in Iraq.
Since toppling Assad, HTS has publicly signaled interest in a new more moderate trajectory. Al Jolani even shed his nom de guerre and now uses his legal name, Ahmed al-Sharaa.
U.S. sanctions on HTS linked to those terrorist designations complicate outreach somewhat, but they haven’t prevented American officials from making direct contact with HTS at the direction of President Biden. Blinken recently confirmed that U.S. officials were in touch with HTS representatives prior to Carstens and Leaf’s visit.
“We’ve heard positive statements coming from Mr. Jolani, the leader of HTS,” Blinken told Bloomberg News on Thursday. “But what everyone is focused on is what’s actually happening on the ground, what are they doing? Are they working to build a transition in Syria that brings everyone in?”
In that same interview, Blinken also seemed to dangle the possibility that the U.S. could help lift sanctions on HTS and its leader imposed by the United Nations, if HTS builds what he called an inclusive nonsectarian government and eventually holds elections. The Biden administration is not expected to lift the U.S. terrorist designation before the end of the president’s term on January 20th.
Pentagon spokesperson Pat Ryder disclosed Thursday that the U.S. currently has approximately 2,000 US troops inside of Syria as part of the mission to defeat ISIS, a far higher number than the 900 troops the Biden administration had previously acknowledged. There are at least five U.S. military bases in the north and south of the country.
The Biden administration is concerned that thousands of ISIS prisoners held at a camp known as al-Hol could be freed. It is currently guarded by the Syrian Democratic forces, Kurdish allies of the U.S. who are wary of the newly-powerful HTS. The situation on the ground is rapidly changing since Russia and Iran withdrew military support from the Assad regime, which has reset the balance of power. Turkey, which has been a sometimes problematic U.S. ally, has been a conduit to HTS and is emerging as a power broker.
A high-risk mission like this is unusual for the typically risk averse Biden administration, which has exercised consistently restrained diplomacy. Blinken approved Carstens and Leaf’s trip and relevant congressional leaders were briefed on it days ago.
“I think it’s important to have direct communication, it’s important to speak as clearly as possible, to listen, to make sure that we understand as best we can where they’re going and where they want to go,” Blinken said Thursday.
At a news conference in Moscow Thursday, Russian President Vladimir Putin said he had not yet met with Assad, who fled to Russia when his regime fell earlier this month. Putin added that he would ask Assad about Austin Tice when they do meet.
Tice, a Marine Corps veteran, worked for multiple news organizations including CBS News.
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