Peloton laying off 400 employees and Barry McCarthy stepping down as CEO

This morning, Peloton announced that Barry McCarthy would be stepping down as Peloton CEO, President, and as member of the board.

In addition, Peloton announced another round of layoffs at the company. These layoffs are expected to impact around 400 employees, or 15% of the company.

McCarthy provided more context in a letter to shareholders, saying these layoffs are part of a “restructuring” to reduce expenses by $200 million annually, in order to “align our cost structure with the current size of our business”. While the full restructuring might take up to 12 months, the majority of the cost restructing is taking place immediately, and “when fully implemented, we expect to reduce our team size by approximately 15%, or roughly 400 global team members.

Two other cost reduction measures Peloton is taking includes to continue “reducing its retail showroom footprint” – i.e. closing showrooms, which it has slowly been doing over the past several quarters.

The second is Peloton also plans to make changes to their future international launch strategy: “Reimagine the company’s international go-to-market approach to be more targeted and efficient, leveraging global strategies and capabilities – with localized execution – to allow the business to optimize and consolidate resources.”

McCarthy will stay on at Peloton as a strategic advisor through the end of the year. A search process for the next CEO has already been started by the board. Update – You can read more about Barry McCarthy’s severance package and transition role here.

Two members of the Peloton board, Karen Boone and Chris Bruzzo, will act as interim co-CEOs of Peloton while the search is ongoing.

The Peloton board made a statement about McCarthy’s departure, stating:

Barry joined Peloton during an incredibly challenging time for the business. During his tenure, he laid the foundation for scalable growth by steadily rearchitecting the cost structure of the business to create stability and to reach the important milestone of achieving positive free cash flow,” “With a strong leadership team in place and the Company now on solid footing, the Board has decided that now is an appropriate time to search for the next CEO of Peloton.”

McCarthy also sent an email to the Peloton team announcing the changes (which you can read in full at the bottom of this article), which said:

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. The company had to do that in order to generate sustainable positive FCF. Achieving positive FCF makes Peloton a more attractive borrower, which is important as the company turns its attention to the necessary task of successfully refinancing its debt.

McCarthy went on to highlight the talent of both Peloton’s executive and overall team, saying that “If I have one lasting legacy at Peloton, it will be this. You have a GREAT lead team, and although the stock market hasn’t recognized this yet, they will”.

He also said:

A lot of blood sweat and tears have been shed to make Peloton’s turnaround possible. In town halls these last two years you’ve heard me encourage all of us to be worthy of the moment and the sacrifices made by Peloton alums to position the business for success. Dare to be great. It’s your race to win. You’ve got the talent, the resources, and the tools you need to win, and I’m counting on you to win it.

These announcements were made as part of Peloton’s earnings call – which you can read more about here.

McCarthy had been with the company approximately 2 years, having joined in February 2022 following founder CEO John Foley leaving Peloton.

Barry McCarthy’s full memo to the Peloton team announcing his departure and layoffs said:

By now you’ve heard or read the news that I’m stepping down as CEO of Peloton and that we’re reducing headcount again. You’ve often heard me talk about the importance of dealing with the world as it is and not as we want it to be. This is one of those moments.


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. The company had to do that in order to generate sustainable positive FCF. Achieving positive FCF makes Peloton a more attractive borrower, which is important as the company turns its attention to the necessary task of successfully refinancing its debt.


In my very first shareholder letter as Peloton’s CEO in May 2022 I outlined three priorities for the business: 1. stabilizing the cash flow 2. getting the right people in the right roles and 3. growing again. Together we’ve achieved the first two of these goals. I’m counting on you to achieve the third goal, growing again, next year.


This morning Peloton announced that it finally achieved the first goal, a remarkable accomplishment and a significant milestone. Last quarter the business produced positive free cash flow for the first time in 3 yrs. That’s a lifetime removed from where the business was two years ago.


It may seem counterintuitive to you but for me, the pursuit of FCF has been, first and foremost, about the company’s mission, and not about its financial performance.


The mission is powering Members to be the best version of themselves through connected fitness, but Peloton can’t pursue its mission if it can’t sustain its business, which is why I said two years ago that stabilizing cash flow was Job One. The headcount cuts announced today were made to ensure that Peloton is able to continue to produce FCF while continuing to invest in software, hardware and content innovations, even if revenues continue to shrink Y/Y.


Investing in hardware, software and content innovation is the lifeblood of the business, and the key to reversing the decline in revenues and restoring the company’s growth. I’ve never been more optimistic that Peloton is on the right path to achieve this objective. There have never been more green shoots or more talent in the building than we have today to complete the turnaround successfully.


You’ve often heard me speak about the importance of talent density. I believe it’s foundational to success, and I’ve done my very best to recruit a truly talented exec team to lead the turnaround. If I have one lasting legacy at Peloton, it will be this. You have a GREAT lead team, and although the stock market hasn’t recognized this yet, they will. It’s simply a matter of time.


To shareholders, I once described turnarounds as a full contact sport; intellectually challenging, emotionally draining, physically exhausting, and all consuming, the decisions never more consequential, the urgency ever present, the teamwork never more central to the mission. From where I sit today, that pretty much summarizes my experience these last two years.


A lot of blood sweat and tears have been shed to make Peloton’s turnaround possible. In town halls these last two years you’ve heard me encourage all of us to be worthy of the moment and the sacrifices made by Peloton alums to position the business for success. Dare to be great. It’s your race to win. You’ve got the talent, the resources, and the tools you need to win, and I’m counting on you to win it.


-Barry

This is a developing story and will be updated