To The Moon

Wall Street cheered Peloton Interactive ‘s plans to replace its chief executive, cut 2,800 jobs, and overhaul its board.

Shares rose 25% on Tuesday, the stock’s (ticker: PTON) best day ever, as the firm announced a series of steps to respond to a slowdown in sales.

After a long fall, Peloton shares are up over three consecutive trading sessions, for a gain of 54%.

The company said John Foley will step down as CEO, becoming the board’s executive chairman. Barry McCarthy, the former CFO of Spotify Technology (SPOT) and Netflix (NFLX), will be named chief executive and president. He’ll also join Peloton’s board.

Citi Research analyst Jason Bazinet, who has Neutral rating with a $38 price target, wrote that the restructuring announcements signal a commitment to improving operations.

“And, while we acknowledge the execution risks, we believe the positive share price reaction reflects improved clarity over growth, costs, and cash,” Bazinet wrote.

Aside from the 2,800 job cuts, which would affect 20% of the company’s corporate positions but exclude instructors, Peloton on Tuesday reported a fiscal second-quarter net loss of $1.39 on revenue of $1.13 billion. Analysts polled by FactSet had forecast a net loss of $1.20 per share.

Peloton also issued financial guidance, saying that fiscal-year revenue would range between $3.7 billion to $3.8 billion, below its previous estimate of $4.4 billion to $4.8 billion.

The Wall Street Journal reported the moves earlier Tuesday. Both Foley and McCarthy told the Journal that Peloton had long been planning to hire a new CEO.

“I have always thought there has to be a better CEO for Peloton than me,” Foley said. “Barry is more perfectly suited than anybody I could’ve imagined.”

Peloton stock soared to above $160 in 2020 amid surging demand for Peloton’s bikes during Covid-related lockdowns. But the shares tumbled as gyms reopened.

In late January, Foley said the company was taking “significant corrective actions to improve our profitability outlook and optimize our costs across the company.”

The company said Tuesday it expects the actions it is taking to “achieve at least $800 million of annual run-rate cost savings through operating expense efficiencies and significant margin improvement in its Connected Fitness category.”

Peloton said it would also reduce planned capital expenditures this year by about $150 million, resulting in charges of roughly $130 million. The majority of the charges, the company said, would be recorded in fiscal 2022.

Peloton shares gained nearly 21% on Monday, one day before the CEO announcement, after media reports said Amazon.com (AMZN) and Nike (NKE) were potential suitors of the interactive-fitness company. Apple (AAPL) also was floated as a potential acquirer by Wedbush analyst Dan Ives.

Last month, activist investor Blackwells Capital said it sent a letter to Peloton’s board pushing the company to remove Foley as CEO and explore a sale. Blackwells Chief Investment Officer Jason Aintabi said in a statement that Tuesday’s executive moves didn’t alleviate concerns.

Wedbush analyst Daniel Ives writes that the shift in management brings Peloton to a key fork in the road ahead. The company could try to improve its fundamentals and stock price, or seek a larger firm to scoop it up. Ives sees Apple as a clear strategic fit, due to its healthcare, fitness, and subscription initiatives.

“If Peloton tries to go alone ahead, not sell, there are cautionary tales of troubled consumer products in cost cutting mode that have been down this path with Fitbit and GoPro coming to mind in darker stories,” Ives writes. “In a nutshell, we believe Foley leaving makes it more likely that Peloton ultimately sells the company and the Board clearly has major decisions to make in the days/weeks/months ahead.”

While Peloton has a long road ahead to win back trust investors’, the cuts and the possibility of a sale are a positive sign for shares.