Shares of Peloton (NASDAQ:PTON) are up today after the connected fitness company announced it plans to outsource its future manufacturing. As part of its ongoing turnaround efforts, its equipment will be made by Taiwan-based Rexon Industrial. Peloton said the outsourcing will help it streamline its global supply chain and lower its cost structure. Investors are cheering the news and bidding up PTON stock today.
So far this year, PTON stock has fallen nearly 75% to change hands at approximately $9 per share.
What Happened With PTON Stock
Peloton said in a news release that Rexon Industrial will become its primary manufacturer and take over building its fitness bikes and treadmills. At the same time, Peloton also announced it is suspending operations at its Tonic Fitness facility through the remainder of this year to further save costs. The company acquired Tonic in 2019.
In the release, Peloton CEO Barry McCarthy said, “We believe that this along with other initiatives will enable us to continue reducing the cash burden on the business and increase our flexibility.”
Earlier this year, Peloton announced it was cutting its annual costs by $800 million, including eliminating 2,800 jobs, or about 20% of its workforce. Peloton has also canceled plans to build its own production facility in Ohio.
Why It Matters
Peloton has been trying to turn around its business since vaccines against Covid-19 became widely available. When people returned to public gyms and private fitness clubs, demand for the company’s at-home exercise bikes and treadmills plummeted.
Since assuming his role in February, McCarthy has made clear that he plans to move Peloton to more of a subscription business and rely less on sales of exercise equipment.
In recent months, the company has raised prices for its online fitness classes that are streamed onto its bikes and treadmills. It is also experimenting with a new model where customers can pay a flat rate to rent a piece of equipment and take its on-demand workout classes. Outsourcing manufacturing cements the company’s move toward focusing on a subscription business model.
What’s Next for PTON Stock
PTON stock gets a much-needed boost on today’s news. But while the leg higher is encouraging, Peloton still has a long way to go to regain the confidence of Wall Street and prove its shares can remain viable going forward.
On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
