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Report: Amazon Considering Peloton Acquisition as Fitness Company Seeks Profitability

Peloton is aiming to build its long-term profitability with the appointment of new President and CEO Barry McCarthy along with cost-cutting measures, including 2,800 layoffs and a pivot toward greater reliance on third-party partnerships. Additionally, the company’s recent stock price slump has reportedly attracted interest from potential buyers including Amazon, people familiar with the matter told The Wall Street Journal.

The retailer has revised its 2022 revenue projections down to a range of $3.7 billion to $3.8 billion from an earlier forecast of $4.4 billion to $4.8 billion. Peloton continues to deal with challenges including two unfortunate media portrayals and mid-2021 product recalls following reports of 70 injuries and one death. Subscriber growth projections took a hit as well, with the company expecting to end the year with 3 million users compared to earlier estimates of 3.35 million to 3.45 million.

Peloton Taps a New Leader With Extensive Subscription Business Experience

Peloton is facing these challenges head-on with the appointment of its new CEO: McCarthy is a longtime executive, advisor and board member at both public and private technology companies. He was CFO at Netflix from 1999 to 2010, putting him in a leadership role during the transition from mail-based distribution to streaming-based subscriptions. He also was CFO of Spotify from 2015 to January 2020 and has served on the boards of companies including Pandora and Rent the Runway.

Peloton Co-founder and current CEO John Foley will become Executive Chair when McCarthy takes on his new role on Feb. 9. Additionally, current President William Lunch will become a non-executive director on the board.

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“I’m incredibly proud to have worked with such talented teammates over the years who have helped me build Peloton into what it is today, and I’m confident that Barry is the right leader to take the company into its next phase of growth,” said Foley in a statement. “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.”

Third Parties to Play a Major Role in Cost-Cutting Efforts

McCarthy will come on board as Peloton seeks to reduce costs and overcome its recent hurdles. The company is aiming to achieve at least $800 million in annual run-rate cost savings through operating expense efficiencies and margin improvement in its Connected Fitness category. This includes reducing its planned capital expenditures in 2022 by approximately $150 million.

One element of the strategy will be seeking more extensive partnerships with outside companies. Peloton is winding down its in-house manufacturing plans by cancelling the development of the Peloton Output Park, which would have been the company’s first dedicated factory. The retailer also will optimize its logistics network by reducing its owned and operated warehousing and delivery footprint while scaling up third-party relationships.

Additionally, Peloton will cut global positions across nearly all business operations to “streamline reporting structures and create clearer lines of accountability.” The end result will be a 20% reduction in corporate positions, a decline in owned-and-operated warehouses and delivery teams, and an increase in commercial agreements with third-party logistics providers.

An Amazon Acquisition Would Add Subscription and Wellness Synergies

The reported acquisition interest is in its early stages — Amazon is still discussing a potential bid with advisors but has not committed to making one — but it’s easy to see why large retailers may be considering the deal: Peloton’s market value is currently approximately $8 billion compared to the $50 billion it commanded in early 2021.

Despite this decline, the brand likely still has long-term viability despite its current challenges. It’s true that revenue from the connected fitness segment was down 8% to $796 million in Q4 2021, a significant setback since the division accounts for 70% of Peloton’s revenue. However, subscription revenue makes up the remaining 30% and saw massive growth of 73% to $337.5 million during this period.

This retailer’s subscriber base could be the real treasure for Amazon. A Peloton subscription could potentially be bundled with Amazon Prime, making both services more attractive, and Amazon could gain access to valuable data from Peloton customers. The fitness aspect of stationary bikes also ties into Amazon’s recent push into healthcare and complements the ecommerce giant’s Halo Health and Wellness tracker products.

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