Peloton races tough economic cycle

A Peloton logo is seen on an exercise bike after the ringing of the opening bell for the company's IPO at the Nasdaq Market site in New York City, New York, U.S., September 26, 2019. REUTERS/Shannon Stapleton/File Photo

TORONTO, Oct 6 (Reuters Breakingviews) - Peloton Interactive (PTON.O) is pedaling as fast as it can. The maker of connected bikes plans to cut 500 more jobs, or about 12% of its workforce, according to the Wall Street Journal. Boss Barry McCarthy also told the newspaper that if he can’t orchestrate a turnaround in six months, it’ll probably struggle to make it on its own. However, he added to CNBC that the company was still on track to meet its cash flow goals for the fiscal year and would still be “extremely well-capitalized.”

The climb will be tough. A combination of inflation, interest rate hikes and a weakening economy present stiff headwinds for selling more equipment and subscriptions. Peloton’s revenue is already projected to fall 19% by September, and 23% by December, per analysts polled by Refinitiv Eikon. And even though McCarthy has steadily trimmed the cash burn, free cash flow was a hefty negative $412 million in the three months to June 30. Shrinking the workforce and slashing marketing expenses will help, as could new partnerships with hotelier Hilton Worldwide (HLT.N) and retailer Dick’s Sporting Goods (DKS.N), but there will have to be far more to make a successful run.

The company could moreover be less appealing to potential suitors. Peloton, whose market value has plummeted 90% in a year, is coming precariously close to the end of a wild ride. (By Sharon Lam)

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(The author is a Reuters Breakingviews columnist. The opinions expressed are their own.)

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