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Business

Peloton Co-Founder John Foley Faced Repeated Margin Calls From Goldman Sachs as Stock Slumped

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John Foley,

the co-founder and former chief executive of

Peloton Interactive Inc.,

PTON -3.41%

faced repeated margin calls on money he borrowed against his Peloton holdings before he left the fitness company’s board last month, according to people familiar with the situation.

As Peloton’s shares slumped over the past year,

Goldman Sachs Group Inc.

GS -2.11%

asked Mr. Foley several times to provide fresh funds or additional collateral for personal loans the bank had extended to him, the people said. The company’s share price has fallen nearly 95% from its $160 peak in December 2020.

Resigning from the board gave Mr. Foley flexibility to sell or pledge more Peloton shares, though he said the margin calls weren’t the reason he left the company.

“I didn’t resign from the board because I was underwater,” he said. “To the extent that I took on debt through Goldman, it was because I am bullish on Peloton and still am. It was and is a great company.”

The former chairman and CEO had pledged as collateral about 3.5 million Peloton shares as of the end of September 2021, or about 20% of his stake at the time, securities filings show. The pledged shares were worth more than $300 million a year ago. At current prices, they are worth roughly $30 million.

Peloton has cut thousands of jobs this year to stem its losses.



Photo:

John Smith/VIEWpress/Getty Images

Mr. Foley was able to secure private financing and avoid stock sales by Goldman, the people said. He declined to say on Monday how much of his current stake had been pledged or how much he had borrowed against his holdings.

His seat on the board limited his ability to raise additional funds because most public companies prohibit directors and executives from selling their shares during certain trading periods. In addition, Peloton’s policy limits pledges for margin loans by directors or executives to 40% of the value of an individual’s shares or vested options.

Mr. Foley’s decision to leave the board on Sept. 12 followed a tumultuous several months at the company he co-founded a decade ago, as well as a sharp decline in his personal wealth as Peloton’s sagging fortunes diminished the value of his holdings. His stake in the company, worth $1.5 billion a year ago, is currently worth less than $100 million.

“Everyone can see I had a rocky year,” Mr. Foley said. “This was not a fun personal balance-sheet reset.”

Barry McCarthy, a Silicon Valley veteran, became Peloton’s CEO in February.



Photo:

Angela Owens/The Wall Street Journal

In February, Mr. Foley stepped down as Peloton’s CEO and was succeeded by

Barry McCarthy,

a former

Netflix Inc.

and Spotify Technology SA executive. Mr. Foley kept his position as Peloton’s executive chairman and continued to hold a controlling stake in the company through Class B shares with 20 votes apiece.

A few weeks later, Mr. Foley reported selling $50 million worth of Peloton shares in a private transaction. At the time, Peloton said the sale was part of the executive’s personal financial planning. The sale left him and his wife,

Jill Foley,

a former Peloton executive, with 6.6 million shares and options on another 8.4 million, according to securities filings, which combined are currently worth less than $100 million. He hasn’t reported any stock or option sales since March. Business Insider reported in March that Mr. Foley was in discussions with Goldman about restructuring his personal loans.

Peloton’s business deteriorated throughout the spring and summer, with the company in August reporting a $1.2 billion loss and the first ever quarter in which its subscriber numbers failed to grow. The company has cut thousands of jobs this year to stem its losses, including a round of layoffs unveiled last week.

Mr. Foley’s 10-year tenure as CEO was marked by rapid growth and sometimes lavish spending. He took heat from Peloton employees last December for hosting a black-tie holiday party that included some of the company’s celebrity instructors weeks after implementing a hiring freeze. Pictures circulated on Instagram of gown-clad instructors dancing at New York’s luxury Plaza Hotel. Mr. Foley acknowledged on social media that the event caused “frustration and angst” among employees.

Peloton has been on a wild ride, announcing its CEO was stepping down and thousands of jobs would be cut, despite seeing a surge in sales early in the pandemic. Here’s why Peloton became a viral success, and why it’s spinning out now. Photo illustration: Jacob Reynolds

That same month, Mr. Foley paid $55 million to purchase an oceanfront mansion in East Hampton, N.Y., according to real-estate records and people familiar with the transaction. He and Ms. Foley in September put their Manhattan penthouse up for sale. The property, last priced at $6.5 million, is in contract to be sold, according to listings website StreetEasy.

Margin loans, or borrowing against portfolios of stocks and bonds, come with the risk that a broker can call for additional cash or collateral to meet the minimum equity required if a security’s price drops too low. Sharp drops in stock prices during the 2000 dot-com burst and the 2008 financial crisis generated margin calls for executives at well-known companies.

John Foley paid $55 million to purchase this oceanfront mansion in East Hampton, N.Y.



Photo:

PICTOMETRY

Peloton requires directors, executives and employees to get approval for pledging their shares as collateral for margin loans. Other Peloton executives also have pledged some of their Class B holdings, and in the annual report Peloton filed last month, the company warned that investors could be harmed if its stock fell and executives were forced to sell shares.

Goldman has worked closely with Peloton, including when Mr. Foley was the CEO. The investment bank was one of the lead underwriters of the company’s initial public offering in 2019. Goldman bankers also co-led a $1 billion stock offering in November 2021.

Investors initially soured on Peloton—its shares fell 11% the day they made their debut at $29. The stock surged in 2020 during the onset of the Covid-19 pandemic, giving the company a peak market value of $50 billion and making Mr. Foley a billionaire on paper. The shares closed down 3.4% Tuesday at $8.78.

—Theo Francis

and Katherine Clarke contributed to this article.

Write to Sharon Terlep at sharon.terlep@wsj.com and Suzanne Vranica at suzanne.vranica@wsj.com

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Technology

Games That Push the Brain to the Limit Get Scientists’ Attention in Fight Against Dementia

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You may be able to prevent or delay dementia with changes in diet and exercise, research has found. Now another possible tool for avoiding dementia is getting researchers’ attention: specially designed videogames.

Companies are marketing a crop of digital games that promise a workout for the brain, with a battery of speed, attention and memory exercises. Researchers are working on them, too. Scientists are studying whether such “brain training” games can help stave off or delay age-related deterioration in the brain.

These games aren’t what people typically think of as videogames or puzzles. In some, players must differentiate and recall sounds, patterns and objects, making snap decisions that grow harder as the games progress. One game gives users a split second to locate two matching butterflies in a swarm before the image disappears. 

Many scientists say it’s too early to tell whether the games really can prevent dementia, and question whether they can lead to long-term improvements in memory and daily functioning. But some scientists think the games are promising enough that they’re pouring millions of dollars into studying them. 

Neuroscientists have long recommended traditional games, such as bridge, Sudoku and crossword puzzles, to keep the brain sharp. Crosswords don’t help people process information speedily, though, a skill whose age-related deterioration can progress to dementia.

The newer games, such as one called Double Decision developed by scientists, try to stimulate and speed up neural activity and slow deterioration in brain physiology that occurs with age. 

In a healthy brain, myelin, a layer of insulation, keeps nerve fibers taut and densely bundled, says

Chandramallika Basak,

an associate professor at the University of Texas at Dallas. Our myelin frays and unravels with age, interfering with memory and clear thinking, she says.

In recent imaging studies, her team and scientists from the University of Iowa observed that people who played brain training games maintained or increased myelin in some parts of the brain compared with control groups that played other types of games that didn’t require speed or increasing levels of difficulty.  

Interest in studying brain-training games has grown since a 2020 report published in the journal Lancet said that as many as 40% of dementia cases could theoretically be prevented or delayed with lifestyle changes, such as adjusting diet and exercise and managing hypertension. 

Dementia is marked by age-related losses in memory, attention and thinking speed that are severe enough to interfere with daily living. Alzheimer’s, a neurodegenerative disease, is the most common type of dementia. Women who are 45 years old have a 20% lifetime chance of developing Alzheimer’s, according to the Alzheimer’s Association. Men the same age have a 10% chance. 

Cognitive training, which includes anything from computerized exercises to puzzles and bridge, has been identified by the National Academies of Sciences, Engineering and Medicine as a promising area of dementia-intervention research. There’s no recommended age to start playing these games. You can find games online or at libraries, community colleges or local chapters of the Alzheimer’s Association.

Brain-training games haven’t been proven to prevent dementia, says the National Institute on Aging, part of the National Institutes of Health. Studies so far have yielded mixed results on the games’ effectiveness; doubts remain over their ability to produce long-term practical improvements. 

Still, the research to date has been encouraging enough—and dementia so prevalent—that scientists are studying the games further. The World Health Organization in 2019 recommended cognitive training for older adults as a way to reduce the risk of dementia even though the science behind it isn’t definitive.

The National Institute on Aging is funding 21 clinical trials to try to learn what types of games might improve factors such as memory and attention and reduce the long-term risk of developing dementia. A series of studies of nearly 3,000 people funded in part by the NIA suggested that the benefits of a course of exercises requiring speedy observations and snap decisions appeared to help older people 10 years later and lower their dementia risk by 29%.

The training in the study consisted of 10 initial 60- to 75-minute sessions where people played speed-and-recall games, and eight booster sessions later. The study wasn’t designed at the outset to assess dementia risk, according to

Dana Plude,

a deputy director at the National Institute on Aging. But the results are a key reason for his interest in cognitive training, and the NIA is currently funding a $7 million clinical trial to further test the results.

Brain training games can be fun but frustrating, regardless of your age and mental stamina. Apps generally charge a monthly or annual fee; some offer a training routine that may be personalized.

SHARE YOUR THOUGHTS

What “brain exercises” do you do to keep sharp? Join the conversation below.

CogniFit, one such app, offers online cognitive assessments and brain training for $19.99 a month for its basic 20-game plan and $29.99 for its 60-game premium plan. It suggests users spend 10 to 15 minutes three times a week on nonconsecutive days to increase their cognitive scores.

Double Decision is sold by Posit Science, whose games are offered commercially and have been used in studies funded by the U.S. Defense Department, the NIA and others. 

The goal of Double Decision is to progressively increase the amount of visual information a brain can take in and the speed at which it processes the information—capabilities that typically decline with age. Repeated gameplay trains the brain to think and react more quickly,  focus better and remember more, says

Michael Merzenich,

chief science officer of Posit Science. 

In the exercise, two different cars appear in the middle of a screen with a Route 66 sign floating in the periphery. One of the cars plus the road sign flash onto the screen and then disappear. A player must recall which car they just saw and the location of the road sign. The game speeds up and adds distractions like a herd of cows or dozens of road signs. 

“Brain health is manageable,” says Dr. Merzenich. “We should treat brain health as seriously as our physical health.”

Double Decision is designed to improve attention, memory and processing speed by forcing the brain into split-second observations and decisions. Content hosted by BrainHQ

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Health

3 Types of Leisure Activities That Can Lower Your Risk of Dementia

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The scientists found that people who engaged in leisure activities had a 17% lower risk of dementia.

Scientists answer: Which leisure activities are associated with a lower risk of dementia?

According to a recent meta-analysis recently published in Neurology, the medical journal of the American Academy of Neurology, leisure activities like reading a book, practicing yoga, and spending time with family and friends may help reduce the risk of dementia. The meta-analysis examined existing studies on the effects of cognitive, physical, and social activities on the risk of dementia.

“Previous studies have shown that leisure activities were associated with various health benefits, such as a lower cancer risk, a reduction of atrial fibrillation, and a person’s perception of their own well-being,” stated study author Lin Lu, Ph.D., of Peking University Sixth Hospital in Beijing, China. “However, there is conflicting evidence of the role of leisure activities in the prevention of dementia. Our research found that leisure activities like making crafts, playing sports or volunteering were linked to a reduced risk of dementia.”

In the meta-analysis, 38 studies from across the globe including more than 2 million adults without dementia were examined. The participants were observed for at least three years.

Participants gave information on their leisure activities through questionnaires or interviews. Leisure activities are those individuals participate in for their pleasure or well-being. Scientists classified leisure activities into one of three categories: social, physical, and mental.  74,700 individuals developed dementia throughout the studies.

After controlling for age, gender, and education, researchers discovered that leisure activities overall were associated with a lower incidence of dementia. When compared to individuals who did not participate in leisure activities, dementia risk was reduced by 17%.

Mental activities mostly consisted of intellectual pursuits such as reading or writing for enjoyment, watching television, listening to the radio, playing games or musical instruments, using a computer, and doing crafts. These activities were shown to have a 23% lower risk of dementia in participants, according to researchers.

Physical activities included walking, running, yoga, swimming, playing sports, bicycling, using exercise machines, and dancing. Researchers found that people who participated in these activities had a 17% lower risk of dementia.

Social activities mainly referred to activities that involved communication with others and included attending a class, volunteering, joining a social club, visiting relatives or friends, or attending religious activities. Researchers found that people who participated in these activities had a 7% lower risk of dementia.

“This meta-analysis suggests that being active has benefits, and there are plenty of activities that are easy to incorporate into daily life that may be beneficial to the brain,” Lu said. “Our research found that leisure activities may reduce the risk of dementia. Future studies should include larger sample sizes and longer follow-up time to reveal more links between leisure activities and dementia.”

The study was limited by the fact that people reported their own physical and mental activity, so they may not have remembered and reported the activities correctly.

Reference: “Leisure Activities and the Risk of Dementia: A Systematic Review and Meta-Analysis” by Sizhen Su, Le Shi, Yongbo Zheng, Yankun Sun, Xiaolin Huang, Anyi Zhang, Jianyu Que, Xinyu Sun, Jie Shi, View ORCID ProfileYanping Bao, Jiahui Deng and Lin Lu, 10 August 2022, Neurology.
DOI: 10.1212/WNL.0000000000200929

The study was funded by the Natural Science Foundation of China, the China Association for Science and Technology, and the PKU-Baidu Fund.



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Business

CVS Is in Advanced Talks to Buy Signify Health for Around $8 Billion

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CVS Health Corp.

CVS -0.49%

is in advanced talks to acquire the home-healthcare company

Signify Health Inc.

SGFY 1.34%

for around $8 billion, according to people familiar with the matter.

CVS appears to have beat out other heavy hitters including

Amazon.com Inc.

and

UnitedHealth Group Inc.,

which had been circling Signify for a deal that could be announced soon. UnitedHealth never submitted an official bid, one of the people said.

There is still no guarantee that CVS will reach a deal for Signify, which has been exploring strategic alternatives since earlier this summer.

Bids for the company were due Sept. 6, but people familiar with the matter have said that an eager buyer could make a move before then.

Signify’s valuation has ballooned since The Wall Street Journal reported in August that it was for sale. Shares of the company closed at $28.77 on Friday, giving it a market capitalization of roughly $6.7 billion.

Signify works with a large group of doctors to facilitate house calls. It uses analytics and technology to help physician groups, health plans, employers and health systems with in-home care. It offers health evaluations for Medicare Advantage and other plans.

At the close of its deal this year to buy Caravan Health, Signify said that it supported roughly $10 billion in total medical spending.

The company went public in February 2021, raising more than $500 million as a result of the offering. On the day of its initial public offering, shares of the company priced above its expected range, at $24.

New York-based New Mountain Capital has backed Signify since 2017. The firm—which had more than $37 billion in assets under management as of early August—has steadily expanded Signify through a series of mergers and acquisitions since its initial investment.

New Mountain is well-versed in the healthcare sector. It previously sold the healthcare payments firm Equian LLC to UnitedHealth for roughly $3.2 billion in 2019.

For CVS, the deal builds on an effort years in the making to transform itself into a major provider of healthcare services through acquisitions and expanded medical services. The company had been struggling to counter slowing revenue from prescription drugs, which drive the bulk of its sales, and to ward off competition from

Amazon

AMZN -0.24%

for retail dollars.

CVS, the nation’s largest drugstore chain by stores and revenue, acquired Aetna in 2018, arguing that melding the insurance company’s patient data with its network of nearly 10,000 bricks-and-mortar sites would squeeze out costs while improving care and convenience.

The strategy has paid off, buoyed by a surge in demand for Covid-19 vaccines and tests at the height of the pandemic. CVS’s market capitalization has grown to more than $130 billion from around $75 billion since the Aetna deal.

The line between Amazon and Walmart is becoming increasingly blurred, as the two companies seek to maintain their slice of the estimated $5 trillion retail market while chipping away at each other’s share, often by borrowing ideas. Photos: Amazon/Walmart

The company is outperforming

Walgreens Boots Alliance Inc.,

which opted against major acquisitions, in the years since. Walgreens, also racing to expand into healthcare, focused largely on partnerships rather than deals. But last year it bought a controlling stake in the primary-care network Village MD, giving it doctors’ offices that CVS had said it could do without.

CVS Chief Executive

Karen Lynch

has since said that the company must have a foothold in primary care if it is to become a full-service medical provider.

CVS had previously been interested in a deal for the parent of One Medical, people familiar with the matter have said.

Amazon

AMZN -0.24%

agreed to purchase the primary-care clinic operator for about $3.9 billion in July.

The Federal Trade Commission is currently investigating the deal. The parent company of One Medical,

1Life Healthcare Inc.,

disclosed the investigation in a securities filing. The disclosure said One Medical and Amazon each received a request for additional information about the deal from the FTC.

While Wall Street has largely focused on CVS’s efforts to acquire primary-care practices, executives have also discussed ambitions to expand its in-home health presence.

A deal for Signify would represent a bright spot in an otherwise lackluster run for deals lately. Deal volumes globally are down roughly 30% this year after a flurry of activity last year, because of a drop in companies’ valuations, market volatility and other factors including Russia’s war in Ukraine.

Healthcare deal making in particular has slowed more than many other sectors. Over $200 billion of healthcare deals announced so far this year has compared with over $400 billion at this time last year, according to Dealogic. The largest healthcare deal to date this year in the U.S. is

Pfizer Inc.’s

$11.6 billion agreement in May to purchase the rest of

Biohaven Pharmaceutical Holding Co.

Write to Laura Cooper at laura.cooper@wsj.com, Sharon Terlep at sharon.terlep@wsj.com and Cara Lombardo at cara.lombardo@wsj.com

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US

California Fast Food Wages Would Be Set by Government Under Bill Passed by State Legislature

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California’s Legislature passed a bill Monday to create a government panel that would set wages for an estimated half-million fast food workers in the state, a first-in-the-U.S. approach to workplace regulation that labor union backers hope will spread nationally.

The bill, known as the Fast Act, would establish a panel with members appointed by the governor and legislative leaders composed of workers, union representatives, employers and business advocates. They would set hourly wages of up to $22 for fast food workers starting next year and can increase them annually by the same rate as the consumer-price index, up to a maximum of 3.5%.

A previous version of the bill passed by the state Assembly in January also allowed the council to oversee workplace conditions such as scheduling and made restaurant chains joint employers of their franchise’s employers, potentially opening them to liability for labor violations.

Representatives for companies including

McDonald’s Corp.

,

Yum Brands Inc.

and

Chipotle Mexican Grill Inc.

succeeded in having those provisions removed in the state Senate via amendments over the past week, though they still oppose the bill.

“This is the biggest lobbying fight that the franchise sector has ever been in,” said

Matthew Haller,

president of the International Franchise Association, a trade group whose members own many fast food restaurants.

A University of California, Riverside School of Business study commissioned by the franchisee association found that setting minimum wages between $22 and $43 would generate a 60% increase in labor costs and raise fast-food prices by about 20%.

California’s current minimum wage is $15 and is set to increase by 50 cents on Jan. 1.

The final version of the Fast Act passed both houses of the Democratic-controlled state Legislature on Monday. In both the Assembly and the Senate, all of the “yes” votes came from Democrats and every Republican who voted opposed the bill.

Democratic Gov.

Gavin Newsom

now has until Sept. 30 to decide whether to sign or veto the bill.

Mr. Newsom hasn’t taken a public stance on the current version of the bill, but his Department of Finance opposed the original version.

Labor unions backing the measure have long struggled to organize fast food workers, in part because the industry’s franchise model means there are so many different employers.

California lawmakers first floated the bill last year, with proponents arguing that tighter regulations were needed to protect fast food workers, who are overwhelmingly Black or Latino and who they say experience unpaid overtime and other labor violations.

The average U.S. home earned more last year than the average American worker. Prices for homes, groceries and gas are rising faster than Americans’ wages and that may be why sentiment and confidence have been so low recently. WSJ’s Dion Rabouin explains. Photo: Joe Raedle/Getty Images

Despite the recent changes, proponents said the bill is still a significant step forward. Lorena Gonzalez Fletcher, a former Democratic legislator who introduced the bill when she was in the Assembly, said it moves California closer to a labor model used in Europe where unions negotiate for wages and work conditions in an entire sector, rather than company-by-company.

“It’s still a big bold idea. And just the notion of giving workers a voice at the table will be fundamentally different for those workers,” said Ms. Gonzalez Fletcher, who now leads the California Labor Federation, the state’s largest union umbrella group.

The recent amendments call for the council to shut down in 2028 unless it is renewed, though inflation-adjusted wage increases for workers would continue.

The bill covers fast food restaurants that are part of a chain, that have limited or no table service and where customers order their food and pay before eating. The chain must have 100 or more locations nationally, up from 30 in a previous bill version.

California accounts for around 14% of total U.S. restaurant sales, and policy in the state tends to affect the rest of the sector, Citigroup Global Markets Inc. analysts wrote in a client note earlier this month.

Service Employees International Union President

Mary Kay Henry

said she hoped the bill would be a catalyst for similar movements across the country.

Investors have begun to ask about the act’s potential implications for restaurant chains at a time when companies are struggling with high food and labor costs, Wall Street analysts said.

“Obviously, we think it’s problematic on many, many fronts,” said

Paul Brown,

chief executive of Dunkin’ and Arby’s owner Inspire Brands Inc., in an interview. “I think it’s actually trying to solve a problem that doesn’t exist.”

Chipotle, Yum Brands, Chick-fil-A Inc., In-N-Out Burgers,

Jack in the Box Inc.,

and Burger King parent

Restaurant Brands International Inc.

have together spent more than $1 million to lobby lawmakers between 2021 and June 30 of this year, primarily on the Fast Act, state records show.

The International Franchise Association, which represents some 1,200 franchise brands, has spent $615,000 lobbying against the Fast Act and other legislation in that time.

Disclosures for lobbying spending since July 1 aren’t due until later this year, but industry advocacy against the bill has ramped up considerably during that time, people familiar with the effort said.

Labor unions have collectively spent more than $5 million to lobby the Legislature since the beginning of 2021, mostly on the Fast Act, state records show.

McDonald’s has encouraged franchisees around the country to email California lawmakers urging them to vote against the bill, according to a message viewed by The Wall Street Journal.

State Sen. Shannon Grove, a Republican, said on the Senate floor Monday that McDonald’s representatives told her that if the Fast Act becomes law, the company could stop expanding in California or leave altogether.

“Could we really survive without the golden arches?” Ms. Grove said.

Write to Heather Haddon at heather.haddon@wsj.com and Christine Mai-Duc at christine.maiduc@wsj.com

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Business

Peloton’s Quarterly Loss Tops $1.2 Billion

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Peloton Interactive Inc.,

PTON -19.32%

racing to save itself, will reject some of the most fundamental aspects of its decade-old business model. 

The once-hot maker of connected fitness equipment posted losses of more than $1.2 billion in the most recent quarter as revenue plunged and the company warned it would spend more cash than it brings in for several more months. Peloton lost $2.8 billion in the year ended June 30, compared with a $189 million loss in the prior year.

Losses come as demand for Peloton’s bikes and treadmills has plunged and the company’s count of people who subscribe to its fitness classes stagnated after growing fourfold since early 2020. The company had about 3 million subscribers to its connected fitness offering at the end of the June quarter.

Peloton CEO Barry McCarthy aims to make Peloton primarily a subscription-based company.



Photo:

Kevin Dietsch/Getty Images

Peloton shares were down nearly 20% in morning trading, as the company posted steeper losses and weaker revenue than analysts had projected. Through Wednesday’s close, its share price was down 88% from a year ago.

“The naysayers will look at our [fourth-quarter] financial performance and see a melting pot of declining revenue, negative gross margin, and deeper operating losses. They will say these threaten the viability of the business,” Chief Executive

Barry McCarthy

said in a letter to shareholders. “But what I see is significant progress driving our comeback and Peloton’s long-term resilience.”

Peloton has long sought out an affluent base of customers with stationary bikes that cost up to $2,500, and has worked to ensure only owners of its equipment are able to connect to its popular workout classes.

Mr. McCarthy, who took over in February, said the company also will court more frugal customers and make its workout classes, often accessed through screens on Peloton equipment, compatible with competitors’ exercise products.

He said the company is also trying to bring more people in through selling equipment and clothes through Amazon.com Inc.’s e-commerce platform to letting people rent bikes through a subscription. Peloton historically has offered two subscription options, one in which courses connect to bikes and treadmills and cheaper options in which classes aren’t connected.   

“You never know which initiative is going to get us where we want to go, but I am confident of the cumulative effect,” Mr. McCarthy said in a call with analysts. 

The efforts come as Peloton’s finances deteriorate. 

Revenue for the June quarter fell to $679 million, a nearly 30% drop from a year ago as declining exercise equipment sales more than offset higher revenue from subscriptions. 

Efforts to restructure the company contributed to it burning through $412 million in cash in the latest quarter, after going through $650 million in each of the prior two periods. It ended June with $1.25 billion in cash reserves and a $500 million credit line. 

Peloton is taking steps to shore up its finances, from sweeping layoffs to outsourcing manufacturing of its fitness equipment. The company said earlier this month it would cut around 800 jobs in an effort to reduce costs, after announcing in February it would lay off about 2,800 workers. Executives said cost-cutting aims to ensure the company maintains at least $1 billion in available cash.

One of the pandemic’s biggest winners, Peloton has struggled to adapt as Americans revert to prepandemic habits and tighten spending amid inflation near its highest level in decades. Americans are spending less on in-home fitness, from sales of equipment to connected workouts, as they return in droves to gyms and become increasingly cautious about spending available cash amid economic uncertainty.

SHARE YOUR THOUGHTS

How has your Peloton use changed over the course of the pandemic? Join the conversation below.

Mr. McCarthy’s predecessor, Peloton co-founder

John Foley,

spent hundreds of millions of dollars to expand the company’s manufacturing and supply, betting that demand would hold as the pandemic waned. Along with replacing Mr. Foley, the company earlier this year made changes to its board and said it would cancel plans for a $400 million factory in Ohio.

For the first time, in the most recent quarter, Peloton’s subscription revenues were greater than equipment sales. Mr. McCarthy, who previously worked at

Spotify Technology SA

and

Netflix Inc.

, aims to make Peloton primarily a subscription-based company. Subscriber revenue for the quarter was $383 million; equipment sales were $296 million. 

Peloton’s subscriber count rose by just 4,000 in the quarter ended June 30 and the company predicts that the total number of subscribers will remain flat in the current quarter.

It is a big change from the start of 2021, when Peloton’s quarterly revenue peaked at $1.2 billion, and exercise equipment comprised more than 80% of sales. 

The company said it expects total revenue between $625 million and $650 million for the current quarter, which ends Sept. 30.

Mr. McCarthy, in his investor letter, likened Peloton to a dangerously tipping cargo ship he was aboard as a high-schooler when the crew managed a dramatic recovery.

“Peloton is like that cargo ship,” he said. “We’ve sounded the alarm for general quarters. Everyone’s at their station.”

Write to Sharon Terlep at sharon.terlep@wsj.com

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Health

Leisure activities lowers risk of cancer, heart disease and death

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The study from the National Cancer Institute analyzed responses from over 272,000 people between the ages of 59 and 82 who completed questionnaires about their leisure time activities as part of the National Institutes of Health-AARP Diet and Health Study, a longitudinal study of the relationship between diet and health.

The study researchers followed participants for a dozen or so years and analyzed health records for deaths from cancer, heart disease and any cause.

Any combination of aerobic-based activity done for the recommended amount of time per week was associated with a 13% lower risk of death from any cause when compared with doing none of the activities, the researchers found.

Playing racket sports had the highest return for cardiovascular issues: There was a 27% reduction in risk for death from heart disease and a 16% reduction in early death. The largest reduction in cancer risk (19%) was associated with running, while running reduced risk of an early death by 15%, the study said.

Walking for exercise was the most beneficial for lowering the risk of early death after racket sports and running, the study found.

All the activities studied were associated with some lower risks of death, the study found.

“Participation in any of the activities was associated with lower mortality in comparison with those who did not participate in each activity, including moderate-intensity activities,” wrote study author Eleanor Watts, a postdoctoral fellow in epidemiology at the National Cancer Institute, part of the National Institutes of Health.

The study could only show an association, not a full cause and effect.

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Business

Elon Musk says he’s buying Manchester United — but if it’s a joke, the SEC is unlikely to laugh

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Last Updated: Aug. 16, 2022 at 9:27 p.m. ET

First Published: Aug. 16, 2022 at 9:09 p.m. ET

Elon Musk is either getting into international soccer or else may have scored an own goal and teed up more trouble from the SEC.

In a tweet late Tuesday, the Tesla Inc. TSLA chief executive said: “Also, I’m buying Manchester United ur welcome,” referring to the iconic English soccer club that may be up for sale.

It was unclear if Musk was…

Elon Musk is either getting into international soccer or else may have scored an own goal and teed up more trouble from the SEC.

In a tweet late Tuesday, the Tesla Inc.

TSLA

chief executive said: “Also, I’m buying Manchester United ur welcome,” referring to the iconic English soccer club that may be up for sale.

It was unclear if Musk was serious, as he’s well-known for tweeting jokes and frivolous statements.

Neither Manchester United nor the SEC immediately replied to requests for further information.

But if it was a joke, it may not be funny to the Securities and Exchange Commission, since Manchester United

MANU

is a publicly traded company. Musk’s tweet came at 8:01 p.m., just after the end of after-hours trading, so Man U’s stock was unaffected.

Musk is no stranger to tweets coming back to bite him. His 2018 tweet that he had “funding secured” to consider taking Tesla private at $420 a share became the subject of regulatory action by the SEC, ultimately resulting in $20 million fines each against Musk and Tesla.

Musk has sparred with the SEC on a number of other occasions over the years. He’s also embroiled in a bitter legal battle as he’s trying to pull out of a $44 billion deal to buy Twitter Inc.

TWTR

.

On the other hand, if the tweet is true, it would be a seismic deal for one of the most valuable sports brands on the planet. Manchester United’s current owners, the Glazer family, have been under pressure to sell the team after years of underperformance, mismanagement and a revolt by some fans. The team is currently in last place in the English Premier League, after their second straight loss to start the season, an embarrassing 4-0 defeat to Brentford on Saturday.

Last week, reports said British businessman Michael Knighton planned a formal bid to buy the team. The club has an estimated value of $4.6 billion, according to Forbes.

That price tag would be doable for Musk, who is the world’s wealthiest individual, with a fortune estimated around $267 billion, according to the Bloomberg Billionaires Index.

Manchester United went public in a 2012 IPO on the New York Stock Exchange. Its shares are down 10% year to date, in line with the S&P 500’s


SPX

10% loss this year.



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Business

Tesla, Ford attract new investments from George Soros’s fund

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Billionaire investor George Soros’s investment fund has bought stakes in Tesla Inc. and Ford Motor Co. and added to existing stakes in EV makers Lucid Group Inc. and Nio Inc., according to a filing late Friday.

The fund acquired 29.5 million shares of Ford
F,
+2.21%
in the reporting period ended in June, the filing showed. It snapped up nearly 30,000 Tesla shares
TSLA,
+4.68%
in a new position as well.

New positions for the fund also included bets on Twitter Inc.
TWTR,
+0.73%,
the social-media company in the middle of a dispute with Tesla Chief Executive Elon Musk over their soured deal.

The Soros fund offloaded some of its holdings in Rivian Automotive Inc.
RIVN,
-0.13%,
however, ending the reporting period with slightly less than 18 million shares, down from a previous holding of around 20 million shares.

See also: Rivian loses nearly $2 billion in second quarter as expenses mount

New stakes for the fund also included Las Vegas Sands Corp.
LVS,
+2.60%
and Uber Technologies Inc.
UBER,
+0.71%.

The fund sold all of its shares of Bank of America Corp.
BAC,
+1.09%
and Citigroup Inc.
C,
+0.70%
as well as gaming company Take Two Interactive Inc.
TTWO,
+2.05%,
among others.

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Business

Disney Reports Earnings Surge, Reduces Long-Term Forecast for Disney+ Subscribers

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Walt Disney Co.

DIS 3.98%

reported a better-than-expected 26% jump in revenue Wednesday, driven by record results at its theme parks division and the addition of more new subscribers than projected to its flagship streaming video platform Disney+.

Disney’s results highlight the complex dynamics of the competitive streaming landscape. The company lowered its forecast for future Disney+ growth, raised the prices on its streaming offerings, outlined plans for a new ad-supported tier of Disney+ and said nearly all of the streaming service’s growth is coming from overseas.

The company’s earnings this quarter reflect the difficulties it and rivals, such as

Netflix Inc.,

face in attracting new customers domestically, where streaming options abound and many households use one or more services. Plus, in an increasingly difficult economic environment, some households are rethinking spending on in-home entertainment, industry analysts have said.

Chief Executive

Bob Chapek

said he didn’t think the price changes would result in any meaningful loss of streaming customers. “We believe that we’ve got plenty of price value room left to go,” Mr. Chapek said.

On the company’s call with analysts, Chief Financial Officer

Christine McCarthy

ratcheted down its forecast for Disney+, saying it now expects a total range of 215 million to 245 million subscribers by September 2024, in part because it lost the right to air popular Indian cricket competitions.

A few months ago, Mr. Chapek said the company’s previous target of 230 million to 260 million, set by the company in December 2020, was “very achievable.”

In the three-month period ended July 2, Disney+ gained 14.4 million new subscribers, bringing its global total to 152.1 million subscribers. Analysts were expecting 10 million additions, according to

FactSet.

Wednesday’s report brings Disney’s total subscriber base to 221.1 million customers across all of its streaming offerings, including ESPN+ and Hulu, surpassing Netflix, its chief streaming rival, in total customers. Netflix last month reported it had 220.67 million subscribers.

Disney shares rose about 7% in after-hours trading to $120.11.

Overall for the third quarter, the world’s largest entertainment company reported profits of $1.41 billion, or 77 cents a share, up from $918 million, or 50 cents a share, in the year-ago period. Revenue increased to $21.5 billion, above the average analyst estimate of $20.99 billion on FactSet.

Since 1967, the Florida land housing Disney’s theme parks has been governed by the company, allowing it to manage Walt Disney World with little red tape. WSJ’s Robbie Whelan explains the special tax district that a Florida bill would eliminate. Photo: AP

Sales at the parks, experiences and products division—which includes Disneyland, Walt Disney World and four resorts in Europe and Asia and has historically been Disney’s most profitable segment—reached $7.4 billion for the quarter, a record, and was up 70% from a year earlier. The division posted profits of $2.2 billion for the quarter, up from $356 million a year ago.

“Demand has not abated” at the parks, Ms. McCarthy said. Since reopening in 2021 after pandemic-related closures, Disney’s theme parks haven’t been running at full capacity, but a new online reservations system and ride-reservation apps have helped the company better respond to demand and generate more revenue per visitor.

Over the past year, CEO Bob Chapek and other top Disney executives have signaled an increased focus on international markets for growing its streaming business.



Photo:

Laurent Viteur/Getty Images

Ms. McCarthy said that if economic conditions worsen, Disney could tweak the reservation system to allow more visitors in on certain days, but as of now, demand is outstripping available spots.

Disney’s direct-to-consumer segment, which includes video streaming, lost $1.1 billion in the third quarter, widening from a loss of $293 million a year earlier. Since Disney+ launched in late 2019, the segment has lost more than $7 billion. On Wednesday, Ms. McCarthy said Disney’s estimate for overall spending on content for fiscal 2022 had fallen slightly, from $32 billion to $30 billion.

Disney gave a launch date of Dec. 8 and outlined pricing information for its previously announced ad-supported tier of Disney+ in the U.S., a new product designed to expand the reach of the company’s streaming business.

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The price of the ad-free stand-alone Disney+ service will rise from its current level of $7.99 a month in the U.S. to $10.99 a month, or $109.99 a year. The new, basic Disney+ service with ads will cost $7.99 a month.

The premium Disney streaming bundle, which includes ad-free versions of Disney+ and Hulu, as well as a version of sports-focused ESPN+ with ads, will remain at its current price of $19.99 a month in the U.S., while a bundle that includes all three services, but with ads on Hulu, will rise in price by $1 a month, to $14.99.

Mr. Chapek defended the price increases, saying that when it was launched, Disney+ was among the most competitively-priced streaming offerings and that the company has added more and higher-quality content to the service.

“I think it’s easy to say that we’re the best value in streaming,” Mr. Chapek said Wednesday.

Over the past year, Mr. Chapek and other top Disney executives have signaled an increased focus on international markets for growing its streaming business. Disney is spending heavily to produce hundreds of local-language television shows in countries such as India, and over the summer, Disney+ launched in 53 new countries and territories, mainly concentrated in Eastern Europe, the Middle East and North Africa.

Pricing for a Disney+ subscription in many of these new markets runs below the $7.99 a month that American customers pay. Still, Disney+’s average monthly revenue per paid subscriber—a key metric in streaming businesses—stood at $6.27 in North America, compared with $6.29 internationally, excluding Asia’s more inexpensive Disney+ Hotstar service.

Disney+ Hotstar, the service used by Disney’s 58.4 million subscribers in India, produces just $1.20 a month per user. Some analysts and former Disney executives predict that losing cricket streaming rights will result in millions of canceled accounts over the next year.

The flagging growth of North American Disney+ subscriptions is likely the result of a glut of content being released by in movie theaters and on a proliferation of streaming services, as well as fatigue the Star Wars and Marvel superhero movie franchises, said Francisco Olivera, a Disney shareholder who manages a small family fund based in Puerto Rico that has about 15% of its holdings in Disney stock.

The addition of an ad-supported tier, higher prices and possible further integration of the Hulu service in the future, could help reduce subscriber churn and make it easier to achieve profitability, he said.

“It’s a healthier market right now with the parks recovering, so they’re really flexing their muscles on pricing,” Mr. Olivera said.

—Sarah Krouse contributed to this article.

Write to Robbie Whelan at Robbie.Whelan@wsj.com

Corrections & Amplifications
Disney+ launched in 53 new countries and territories over the summer. An earlier version of this article incorrectly said it launched in 54. (Corrected on Aug. 10)

Write to Robbie Whelan at robbie.whelan@wsj.com

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