What's up guys and welcome back to wall street millennial on this channel, we cover everything related to stocks and investing. This video was brought to you by masterworks, a platform that allows ordinary investors like you and me to invest in contemporary art. If you want to learn more click, the link in the description below or wait until the end of the video today, we woke up to another day and yet another all-time low for peloton's share price, which is now 22 below its 2019 ipo price and 88 below Its all-time highs by this point most of you probably already know the story of the embattled connected fitness maker over the past couple years. During the pandemic, they saw demand for their home exercise products skyrocket as gyms closed down the company and investors naively thought that the pandemic growth could continue forever.

Investors bid the stock price up to a 50 billion dollar valuation and peloton unveiled a plan to build a massive new factory in ohio, but starting in the fall of 2021. Reality came crashing down like a ton of bricks, gyms reopened and their sales plummeted by february. This year it became obvious that their cash burn was unsustainable, founder and ceo john fully was forced to step down and they enacted a draconian restructuring plan resulting in 20 of their employees being told to pack up their bags. He was replaced by former spotify cfo barry mccarthy.

Initially, there was optimism that an outsider, like mccarthy, could bring fresh perspective and allow the company to recover from the incompetency of the old leadership. When the leadership change was announced, the stock initially reacted positively increasing as much as 50 percent, but unfortunately, shareholders were in for even more paint. The stock has given up all these gains and as of recording, this video sits at yet another all-time low things have gotten. So bad that many investors don't see any viable future for peloton as an independent company blackwell's capital.

A hedge fund, which owns about five percent of peloton's outstanding shares, says that the company should explore strategic alternatives, in other words, selling the company to a competitor such as nike or amazon. In fact, blackwell has even threatened to sue the company if they don't do this. In this video we'll take a look at peloton's turnaround plans and whether they have any chance of success. We've already made two videos in the past detailing the rise and fall of peloton.

Both are linked in the description below so for now we can dive right into the company's turnaround. Plant pelton has a few main problems. First, off their products are very expensive. Their cheapest stationary bike starts at one thousand one hundred dollars and their treadmills cost upwards of three thousand dollars.

They also now charge a 250 delivery fee to bring the bike to your home as pandemic demands started waning. Unsold bikes started to fill up their warehouses and they were forced to massively cut prices at the same time as they were, cutting their prices. Their input and labor costs started to rise in light of the general inflationary environment as their delivery costs skyrocketed. They started charging a 250 delivery fee for their bikes, which offset a large portion of their price cuts.

That makes it unlikely that they'll be able to stem the collapse in demand with the price cuts, peloton, barely breaks even on the bikes. The real money maker is the monthly subscription that customers pay for online training sessions. This costs 39 per month and has zero marginal cost for the company, while the classes are profitable, it's not enough to make up for the company's skyrocketing advertising and general administrative expenses at the current rate. Peloton is burning hundreds of millions of dollars every single quarter to fund this cash burn.

They have continuously issued new shares diluting the ownership stake of existing shareholders. This past november cfo jill woodworth reassured investors that they were adequately managing their cash burn. It would not need to raise capital based on their current outlook. Just 12 days later, they announced plans to issue 1.1 billion dollars worth of new stock.

Many people viewed this as misleading investors and raised doubts about the competency of their entire senior management team. In february 2022 activist hedge fund blackwell's capital released a damning presentation, exposing the failings of the company, the presentation, savagely attacked co-founder and ceo john foley, saying that he is incompetent and there is no chance of success with him at the helm. They start off by saying: peloton has incredible technology and a world-class brand under the right leadership, it could be very profitable and valuable, but the mismanagement has caused it to be the single worst performing stock in the nasdaq 300, incurring a 76 loss for its shareholders. In 2021., as a public figure, any statements that you make can and will be used against.

You blackwell's pointed out the time magazine interview from 2020. in the interview. Foley admits that he knew very little about the company's finance or technology, which is a pretty shocking statement for a ceo of a multi-billion dollar technology company. He says that he delegated 99 of the finance work to the cfo and sometimes went months on end without talking to the chief technology officer.

While he didn't have a deep understanding of the finances, he was very good at spending money. He signed a 450 million dollar deal to lease a large corporate headquarters in manhattan and increased the company's headcount by 20 fold between 2017 and 2021. Even after the business started, deteriorating fully continued to tell investors that he's never been more excited about the company's prospects. At the same time, he was dumping 100 million dollars worth of his personal stake in the company.

One of his most absurd proclamations came in september of 2021 when he told investors that he is playing chess, while his competitors aren't even playing checkers. The stock price of the company has fallen by roughly eighty percent. Since that statement, foley once said that peloton will become a one trillion dollar company. His delusions of grandeur have harmed not only the shareholders but may have also been a threat to the safety of peloton customers.

In march of 2021, a child tragically died in an incident involving one of pelton's tread plus devices, the u.s consumer product safety division recorded more than 70 incidents of injury involving the treadmill, including a severe brain injury. Children could get pulled underneath the machine and trapped while it is running in light of the growing number of these horrific incidents. The agency warned people not to use the treadmill if they had children or pets in the household. Peloton almost immediately put out a very aggressive response.

They said that the agency's claims were misleading and inaccurate and that the tread plus was perfectly safe. As more evidence mounted, they were forced to backtrack and recall their tread and tread plus treadmills to fix the safety issues. This was a massive embarrassment to the company and did long-lasting damage to their previously pristine brand image. Just a few days after publishing their presentation, blackwell's capital had their wish granted at least partially foley was forced to step down and they started mass layoffs of their corporate employees.

But the new ceo, barry mccarthy says that he does not plan to sell the company. He thinks that with the right reforms he can bring the company to profitability. The first pillar of the ceo's new strategy is to change the pricing model, they'll be decreasing the price of the bikes and treadmills, while increasing the cost of the monthly subscription. The idea is that this will help them increase the user base and once they get critical mass, the subscription revenue will be enough to cover their fixed costs.

They also ruled out the rock 22 challenge, which are workouts with the rock music theme and finally, they're experimenting with a new pricing gimmick where consumers pay a monthly fee to rent the bikes instead of buying them outright. The problem with this strategy is that will increase losses in the short term, they're already barely breaking even on the hardware sales and that's before, even considering their corporate overhead costs. Lowering prices further will just make the crisis even more dire. Their losses have been exploding in recent quarters reaching negative 400 million dollars in the fourth calendar quarter of 2021.

They have 1.6 billion dollars of cash on the balance sheet, which will last them only until the end of 2022. At this rate, barry mccarthy's strategy may work, but there's a good chance that the company would have to do another dilutive equity raise before they reach profitability. The activist investor blackwells is unimpressed by the changes they say it's too little too late, and the company is still doomed to fail unless they can be acquired. There are plenty of companies that could acquire peloton and increase the value substantially.

Almost overnight. For example, apple has a service called apple fitness which integrates with the apple watch and allows users to stream workout classes from home. They can create a tremendous amount of value by integrating peloton's hardware after the disastrous share price performance. Peloton's market cap is only 6.5 billion dollars, even if an acquirer paid a 100 premium.

This would only cost 13 billion dollars, which would be a drop in the bucket for apple investors, who bought peloton shares at the peak of 160 dollars will probably never break even on their investment, but given the abysmal track record of the company in lack of a Clear turnaround plan it may be better to stop the bleeding and pursue a sale. This way, investors can get a buyout premium, which would probably give them around thirty dollars per share, but there's one problem: even if 99 of the shareholders want to sell the company, the founders set up an unequal share class structure where their shares get 20 votes each Compared to one vote for regular shares after dumping, so much of their stock, the insiders only own a small minority of the shares outstanding, but they nevertheless maintain voting control. If john foley and his cronies decide, they want to continue building their empire until the company runs out of cash. Shareholders may have no way out and now a quick word from masterworks who's been a longtime supporter of the channel in 2020, jeff bezos spent over 50 million dollars to buy herding the world radio by ed ruscha.

There's a growing trend of billionaires, investing heavily in contemporary art, thanks to its low correlation with traditional assets and high historical returns, especially during times of high inflation. Masterworks.Io is the only investing platform which allows ordinary investors, like you and me, to invest in the same types of art that bezos is buying. There's a link in the description down below that will allow you to skip the wait list just go to your browser and type masterworks dot art wall street, then we'll click, the button that says skip the wait list. You fill in your name and email address to create the account and press request invitations.

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Once you decide on a painting, you can buy shares which represents fractional ownership in the artwork, so go check out. Masterworks use my link in the description and you'll get to skip the wait list. Alright, guys that wraps it up for this video. Do you think pelton will sell itself? If not, will their turnaround plan work? Let us know in the comments section below as always.

Thank you so much for watching and we'll see you in the next one wall, street millennial signing out.