Why hasn’t Peloton Been Acquired? Deciding Where to Live, and Motivating Ethical Tech Leadership

Scott answers a question about what might be preventing a Peloton acquisition. He then shares his best tips for determining where to live abroad and explains how society can encourage ethical leadership in tech. Music: https://www.davidcuttermusic.com / @dcuttermusic Learn more about your ad choices. Visit podcastchoices.com/adchoices

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:01Scott Galloway?

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• 0:55Scott Galloway?

  Welcome to the Prop G Pod's Office Hours. This is the part of the show where we answer your questions about business, big tech, entrepreneurship, and whatever else is on your mind. If you'd like to submit a question, please email a voice recording to [email protected]. Again, that's [email protected]. First question.

• 1:14Speaker 01

  Hi, Professor Gallaway. This is Prabhas in Houston, Texas. My question is regarding Peloton, which you've often discussed on your show as a potential acquisition target. With the stock price getting absolutely walloped and now the market cap for it being, at least at this point, less than $3 billion, I'm wondering why you think no one has made an offer to buy it yet? The new CEO seems to be indicating that they're going to keep cutting and try whatever they can for the next six months before potentially pulling the plug as a standalone company. Would it make sense for somebody to try and acquire it now versus trying to acquire it next year or the year after in an open process that the board may run at that time? Curious about your insight. Keep up great work.

• 1:55Scott Galloway?

  Prabha, thanks for the question. Houston, I have never understood Houston. I've never understood, like, what is Houston's identity? Is it oil? I don't get it. I don't, I don't. Dallas has a bit of an identity. Austin has a bit of an identity. I think of San Antonio, for some reason, Southwest Airlines and Shamu. I think they have a water park there. I'm sure I'm pissing off everyone in Texas right now. I'll get over it. Anyways, I'm not entirely sure I understand Houston. That's not what you asked, Prabha. Okay, Peloton, they have $3 billion. I think this makes sense for a variety of companies. Amazon, Nike, even Apple. I think Apple could justify, just based on the additional time or attention they would capture from some of the most powerful people in the world, whether it's President Biden or Beyonce, who both use a Peloton.

• 2:39Scott Galloway?

  In addition, this company, distinctive of the shit show that is its supply chain and stock price, has some of the highest NPS scores of any consumer product. The NPS scores at Peloton literally, literally dwarf Netflix or Apple. This is a company that has a rabid following that I think could be monetized a number of ways. So why hasn't it been acquired when $3 billion would literally be a rounding error for an Apple or Amazon? One, there may be something in the works. Specifically, Amazon distributing Peloton or Peloton selling its products through Amazon might be sort of a date before you get married. I wouldn't imagine, I would imagine that they're both smelling each other, if you will.

• 3:22Scott Galloway?

  CEO Barry McCarthy recently told the press that he's focused on growth and said he's feeling optimistic. Also reiterated that there is no strict timeline to turn things around. The trailing 12-month free cash flow is negative $2.4 billion. Now, that might be a reason why no one has stepped up. And that is, the company's cutting costs. I think it's doing what it's supposed to do. It's getting out or it's closing a lot of its stores. It's de-verticalizing, which I usually like. But in this instance, maybe they got too far out over their skis and they're spending too much money. So in sum, they're doing a lot of the dirty work. It feels like they're cleaning it up. And maybe a potential acquirer just wants to wait and let them do the hard stuff around cost cutting and firing people and sort of shaping the company up and prettying it up for an acquisition.

• 4:05Scott Galloway?

  The company reported an operating loss of $1.2 billion during its latest quarterly earnings. Wow, 1.2. In a three-month period, that is scary. Maybe that's the reason it's scaring out people. Peloton's revenue from 2021 to 2022 was $678 million. So it's still trading at about four times revenues. So it's really interesting. We always anchor off the high. So you think, oh, it's cheap. $3 billion is still a lot of money. Then when they started this company, a lot of people thought, oh, a cool exercise bike. Is that company worth $3 billion? In other words, you don't anchor off the 30 or the 40, even the 50 billion, I think, was at. You just look at it where it is now and say, is this company worth it? And right now, this company has hemorrhaging cash and has a lot of things to kind of work, work out.

• 4:47Scott Galloway?

  Having said that, the attention to an operating system, a connected device. I still believe that working out from home has had a structural increase. And while people are dying to get back to the gym, it's still never going to be the same. We're not going back to the before times. A lot of people are just more comfortable working out at home. Now, probably the reason it has not sold. My thesis is that Amazon, Apple, Nike, and a variety of others have called and said, hey, we'd love to talk. And these individuals had said, great, we'd love to talk to you, but we want to keep our heads down and we want to get the stock price back up. We're not going to let someone come in here and buy us for five cents or 10 cents on the dollar. And they can say that because insiders control the company with about 60% of voting shares. See, above dual-class shareholder companies.

• 5:32Scott Galloway?

  So a small number of people get to make these decisions. It's not an instance where Nike can come in and say, hi, we own 20% or we filed a 13D once we blew past 5% and 10% and we intend to make an offer for the company and basically do a hostile takeover. There can't be a hostile takeover of this company because there's a small, there's a small group of people who control the company. This is what I don't like about dual-class shareholder companies. And that is corporate governance is modeled after governance. It's supposed to be one person, one vote. This is not one person, one vote. This is Kremlin-style governance where everything's fine, everyone gets a vote until shit gets real and we start talking about important stuff like, should we fire the CEO, Mark Zuckerberg? Should we sell the company, Peloton?

• 6:14Scott Galloway?

  And then a handful of people who may already be rich or have ego on the line, making decisions that are not necessarily in shareholders' best interest. So this thing is so ripe, it's about to fall off the tree, but the tree is controlled and owned by someone else. Prabhas from Houston, thanks for the question. Next question.

• 6:31Speaker 02

  Hi, Prabhi. My name is Mark and I'm a longtime listener of your podcasts. Thanks for providing wonderful insights, having great interviews with a wide variety of guests, and for often brightening my day with your dad joke humor. Given your recent relocation to London, I thought you would be a great person to provide insights to the following question that my wife and I have been pondering. I teach at a high school in LA and have been asked to join a school in Sydney. My wife works at AWS and has been given an opportunity to lead a team in London. So the question is, what framework would you use to help inform our decision-making process? What would be the top things to consider prior to making one of these moves?

• 7:14Speaker 02

  Or, how did you decide on London versus moving to another city you might have been considering? Maybe one last piece of information that can help clarify our situation. We're in our late 40s, in good health, fairly mobile with two kids away in college. One at your alma mater, Berkeley, and the other in the state you used to call home until very recently.

• 7:36Scott Galloway?

  Mark, what a wonderful message, and congratulations on raising what sounds like two really impressive kids and the good work you do. This decision is so personal. So, a couple things. One, would you rather spend a lot of time traveling throughout Southeast Asia and Asia or spend more time traveling through Europe? One of the reasons I moved to London is that I wanted to spend more time in the great capitals of Europe. I think I have spent probably 60 days plus in 17 of the 20 super cities around the world. And my observation is loosely speaking, America is still the best place to make money, but Europe is the best place to spend it. And I'm at a stage in my life where I want to slow down a bit, spend more money, really

• 8:21Scott Galloway?

  enjoy myself, and I thought Europe is the right place to do that. I also have roots in London. My parents are from there. Do you have any roots or anything that would give you a sense of family or any affinity or anything tugging at your heart that puts you in Sydney? The professional opportunity, where would your quality of life be better? London, even with the pound crashing, I think is still likely more expensive in Sydney, but that depends on the economic opportunities or the salary you and your wife would get. I do think Sydney is a bit more remote than London. I think it is easier to get back even to the West Coast from London than it is from Sydney. I've always just thought we'd all live in Sydney if it wasn't so damn far.

• 9:04Scott Galloway?

  But even getting around Asia from Sydney, it's a lot of travel. So this is such a personal decision. Where are your kids more likely to visit? Where do you feel like there'll be more professional upside? Where do you envision yourself on weekends? Would you rather be in Munich for Oktoberfest or on the Amalfi Coast or going to Ireland? Or would you rather be exploring, you know, going to Singapore and checking out Thailand and going to the wonderful cities in Australia, including Melbourne, which I always thought was underrated. I've always thought, I don't want to say Sydney's overrated because it's such a spectacular city, but I've always just absolutely loved Melbourne. I think Australia is singularly one of the, not only one of the best cultures in the

• 9:49Scott Galloway?

  world, but it feels very American to me, and I mean that in the best way. They're a rugged entrepreneurial, rough-and-tumble group of people that love humor and love, you know, they kind of embrace sport and embrace a certain comity or camaraderie of man, very patriotic. I've just always thought that Australians and, you know, Americans are kind of brothers from another mother, if you will. So this is such a good problem. My decision was pretty straightforward. My parents are from there. I've always felt a pull. I wanted my kids to experience a different culture. I thought that would be a gift from us to them.

• 10:33Scott Galloway?

  And we're football crazy and thought it would just be a great excuse to go to a bunch of football games in different stadiums around Europe with our kids while they're still school age. What a great problem. Congratulations on all your success. And do me a favor, ping me and let me know what you decide to do. And thanks for your good work. LAUSD, public school teachers are doing God's work. Thanks so much for your contribution. We have one quick break before our final question. Stay with us.

• 11:06Scott Galloway?

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• 11:50Scott Galloway?

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• 12:24Scott Galloway?

  Welcome back. Question number three.

• 12:27Speaker 03

  Hi Scott. Alex Head from New Zealand. Big fan. I just wanted to ask you about how you see the long-term trends when it comes to creating an ecosystem where the tech leadership is not as morally bankrupt as you see it and as a lot of the world sees it. How do we create an ecosystem of founders that aren't interested in becoming billionaires and that aren't interested in, you know, stealing our data and creating substandard products? How can we get to a world where being a tech entrepreneur is about actually doing something useful? How can we do that from a perspective of entrepreneurship, but also from the venture capital perspective and societally? How do you see us getting to a point where some

• 13:10Speaker 03

  of the tech leadership you often comment on, you start to have more favorable feelings for and the world starts to see them as actually more helpful than detrimental in the long run?

• 13:20Scott Galloway?

  Thanks, Alex. A thoughtful question. Some of this is just proximity bias and that is just I have a bias. Specifically, I think there's a lot of people that are constantly talking about how wonderful these people are and I like to serve as a check, if you will, or a guardrail. There are a lot of wonderful tech leaders and I'm not sure the tech leaders over-index to the negative. I think we have not. I think we failed. I don't think Elon Musk's fault that he has gone from sort of the hero to the villain or becomes sort of a Charles Lindberghian figure where he's decided that he should be deciding what battlefield technology the Ukrainians get and threatens to shut it off because of his blood sugar level that day or commits securities fraud on Twitter

• 14:04Scott Galloway?

  and gets away with it. Anyways, I could go on forever. It's our fault and that is we need to create incentives, mostly disincentives that say, if you know you're depressing teens and you use delay and obfuscation such that we can't address this problem as quickly, then you're going to get fined and possibly go to jail. When you know you're addicting young men with gamification and dark psychological techniques, we're not going to let you go public. We're going to fine you. We're going to regulate your company out of existence. Hello, Robin Hood, who are really mendacious fucks. The co-CEOs there, I think their names are in fact mendacious and fuck. So I think a lot of it is our fault because in a society, a capitalist society, the more money you have...

• 14:47Scott Galloway?

  The more you're loved, people laugh at your jokes, you get a broader selection set of mates, your kids get to do wonderful things, your friends, you can do nice things for your friends, people admire you, people respect you, it's to be loved and we all want to be loved. So we're all willing to make tiny incremental rationalizations for our behavior as long as it's legal. So what do we got to do? We got to make some of this behavior illegal. We need to hold these people and these companies to the same account as we've done other executives and other sectors. But I think, I think the, I think this is on us, Alex. I think we need laws and I think we need a society that doesn't engage in this idolatry of innovators where because magic or because technology is the closest thing we can imagine to magic, we treat these people like gods. Enough already.

• 15:31Scott Galloway?

  They're just, they're humans. When they lie, when they steal, when they weaponize our elections, when they make our discourse more coarse, when they depress our teens, they should be held to task and account the same as any other business executive. So we're the ones who are fucked up here. We need to elect people that understand technology, are willing to break these companies up when they become too powerful and start abusing their monopoly status. In a capitalist society, people will always find rationalizations for how to ignore, why to ignore that they're pouring mercury into the river. Exxon lied to us, RJR lied to us, and Met has been lying to us. And the problem is, we let them. That's all for this episode. Again, if you'd like to submit a question, please email a

• 16:12Scott Galloway?

  voice recording to [email protected]. Our producers are Caroline Shageran, Claire Miller, and Drew Burrows. Sammy Resnick is our associate producer. If you like what you heard, please follow, download, and subscribe. Thank you for listening to the Prop G Pod from the Vox Media Podcast Network. We will catch you next week.