PTON - Peloton

[Broeb22]

Thank you for your unique insights...

I don't see too many flaws in a business where customers are willing to hand over thousands of dollars for some equipment and buy a (relatively) high priced subscription for their services....

Anyone who thinks this is a fad probably felt the same way about NFLX or the iPod back in the day. Back to your cigarbutts.

The bond issue was a good deal...for PTON, not the bondholders...

::) You are correct. It was inappropriate to comment about a specific name (which is out of my league, like most other listed stocks), and without adequate due diligence, especially about the 'model'.

Also, consistently and reliably being personally involved on a trainer in my basement during the winter months does not translate into meaningful insights for this specific situation. Got it.

-----

The post was really meant to comment more on the funding environment. In the last few months, in some sectors i follow a bit more, there have been many issues which seemed (still seem) mind boggling: The Hertz attempt to issue common equity after filing, companies (like LVMH) issuing negative yielding debt and junk bonds trading below 4% last week and i thought (i was possibly wrong there too) that the PTON convertible issue was part of the same environment. i've clearly missed some of the recent enlightenment.

A nice thing about endurance is that one doesn't need to have special skills or to be bright and this can be observed sometimes in real pelotons, especially in multi-day races.

 

+1

[Dalal.Holdings]

I invite all "traditional value investors" on here who enjoy mocking this company to provide an alternative valuation for PTON the enterprise.

 

Let's see what your "fundamental analysis" cooks up. Because remember, folks were even mocking this thing when it was worth just $8 Billion not too long ago.

 

Clearly there is a number greater than zero. And if you want to argue it's worth zero, would love hearing the justification for shits and giggles.

 

 

 

[Broeb22]

I invite all "traditional value investors" on here who enjoy mocking this company to provide an alternative valuation for PTON the enterprise.

 

Let's see what your "fundamental analysis" cooks up. Because remember, folks were even mocking this thing when it was worth just $8 Billion not too long ago.

 

Clearly there is a number greater than zero. And if you want to argue it's worth zero, would love hearing the justification for shits and giggles.

 

Since I'm not a "traditional value investor" I guess you're not asking for my opinion.

 

So I'll just sit back and watch as this company that is definitely not a fad and is maybe trading at 60x Fiscal 2022 earnings goes to the moon. If they do, congrats to the folks that "got it". I don't see it, and I don't have to "get" everything to be a successful investor. But it is pretty amusing seeing some folks like you defend stocks you just sold so vigorously. Good trade, but don't fool yourself into believing you actually were investing.

 

[Dalal.Holdings]

I invite all "traditional value investors" on here who enjoy mocking this company to provide an alternative valuation for PTON the enterprise.

 

Let's see what your "fundamental analysis" cooks up. Because remember, folks were even mocking this thing when it was worth just $8 Billion not too long ago.

 

Clearly there is a number greater than zero. And if you want to argue it's worth zero, would love hearing the justification for shits and giggles.

 

Since I'm not a "traditional value investor" I guess you're not asking for my opinion.

 

So I'll just sit back and watch as this company that is definitely not a fad and is maybe trading at 60x Fiscal 2022 earnings goes to the moon. If they do, congrats to the folks that "got it". I don't see it, and I don't have to "get" everything to be a successful investor. But it is pretty amusing seeing some folks like you defend stocks you just sold so vigorously. Good trade, but don't fool yourself into believing you actually were investing.

 

What's amusing is seeing folks who admit they don't "get it" come around and repeatedly trash something they "don't get". Kind of strange, no?

 

When I don't know enough about something, I don't say anything.

 

So...60x 2022 earnings. I guess you liked it when it was < 12x 2022 earnings less than a year ago right? BTW they have $1.5B net cash on balance sheet, positive FCF TTM...

[valueinvestor]

Not bashing it. But was there any post on this that looked like an investment analysis? Off balance sheet - the brand and community is a valuable asset. Not sure how that translates into a great business. It maybe similar to gymshark - where it’s a clothing store worth $1B in 10 years.

 

Think there’s easier ways to make money. Congrats to the longs, hope the investment continues to pay dividends.

 

[Cigarbutt]

But was there any post on this that looked like an investment analysis? Off balance sheet - the brand and community is a valuable asset...

Mr. Dalal.Holdings,

Can i ask a specific question about the convertible bond?

If yes, from what i understand (your posts) the bond issue may be overpriced but is still good value (over time)?

So, if one is into this because of an enduring moat, this bond should behave, over time, as a call option on the equity. How to value the convertible bond and how much is it worth now (range)?

PTON’s share price has gone up a lot and has been volatile so the models to value the option value are quite unreliable. A way (more fundamental way?) to value the bond may involve a few scenarios of equity value in 5 years, to calculate a few values from these scenarios for the bond near expiration and to discount a weighted number to now. How much would this bond be worth now under this method?

This post aims to be constructive but can be safely ignored.

 

[Dalal.Holdings]

Not bashing it. But was there any post on this that looked like an investment analysis? Off balance sheet - the brand and community is a valuable asset. Not sure how that translates into a great business. It maybe similar to gymshark - where it’s a clothing store worth $1B in 10 years.

 

Think there’s easier ways to make money. Congrats to the longs, hope the investment continues to pay dividends.

 

I keep seeing how it must be a fad because everything else in the exercise space has been a fad in the past...nothing specific to the company or the product though. That's not analysis, that's lazy.

 

 

Over a million connected subscribers and rapidly growing (as are workouts per mo per subscription), $1.5B net cash on the balance sheet, $500M FCF TTM, & they are buying Precor, struggling to meet demand...so what's your bearish price target based on all this?

[valueinvestor]

That's what I was asking haha - I have no opinion as of yet. Just merely pointing out that not many had a long thesis where they would a majority of their net worth into it.

 

There were easier plays to me at the time such as APPS or atleast to me it was easier. Although I agree with you that some are NAV investors rather than value investors when it comes to equities. There is value and an argument could've that the moat was worth $XB. Just merely pointing out that no one really did state that. Nor it is their job or maybe they wanted to keep it to themselves until they build a full position and/or want prices to stay low as long as possible - like me with some positions.

 

Lastly, if there was a bearish target why sell out? Did you find a better idea?

 

Did you invest because of the majority of the thesis was business quality or rather it was event-driven?

 

[Broeb22]

Not bashing it. But was there any post on this that looked like an investment analysis? Off balance sheet - the brand and community is a valuable asset. Not sure how that translates into a great business. It maybe similar to gymshark - where it’s a clothing store worth $1B in 10 years.

 

Think there’s easier ways to make money. Congrats to the longs, hope the investment continues to pay dividends.

 

I keep seeing how it must be a fad because everything else in the exercise space has been a fad in the past...nothing specific to the company or the product though. That's not analysis, that's lazy.

 

 

Over a million connected subscribers and rapidly growing (as are workouts per mo per subscription), $1.5B net cash on the balance sheet, $500M FCF TTM, & they are buying Precor, struggling to meet demand...so what's your bearish price target based on all this?

 

What happens to capacity levels once they meet this literally once-in-a-hundred year demand due to a pandemic coupled with massive fiscal stimulus that gives people the $ to pay for the product?

 

Reasonable people can come to different conclusions on these things, and you add ZERO to the discussion by regurgitating the company's press release. Color me skeptical that the TTM FCF or Forward FCF estimates are levels from which Peloton can grow from once they meet this demand.

 

[Dalal.Holdings]

Not bashing it. But was there any post on this that looked like an investment analysis? Off balance sheet - the brand and community is a valuable asset. Not sure how that translates into a great business. It maybe similar to gymshark - where it’s a clothing store worth $1B in 10 years.

 

Think there’s easier ways to make money. Congrats to the longs, hope the investment continues to pay dividends.

 

I keep seeing how it must be a fad because everything else in the exercise space has been a fad in the past...nothing specific to the company or the product though. That's not analysis, that's lazy.

 

 

Over a million connected subscribers and rapidly growing (as are workouts per mo per subscription), $1.5B net cash on the balance sheet, $500M FCF TTM, & they are buying Precor, struggling to meet demand...so what's your bearish price target based on all this?

 

What happens to capacity levels once they meet this literally once-in-a-hundred year demand due to a pandemic coupled with massive fiscal stimulus that gives people the $ to pay for the product?

 

Reasonable people can come to different conclusions on these things, and you add ZERO to the discussion by regurgitating the company's press release. Color me skeptical that the TTM FCF or Forward FCF estimates are levels from which Peloton can grow from once they meet this demand.

 

Yes of course, it’s all pandemic induced! And all those upper middle class types who are buying this must be eligible for stim checks!

 

Apparently I’m “repeating press releases” by quoting figures from the financial statements and actual subscriber counts...lol...

 

And what are you adding exactly? What’s your valuation number?

[clutch]

Looking at the discussions, it seems that you can EASILY make the argument for either case. Especially the argument regarding this has a similar brand value as iPhone or a fad like Bowflex. There are enough examples on both sides but none of them are that useful IMO, considering the short history of PTON. Similar thing with financials/valuation.

 

At the end of the day, I think you need to predict whether this at-home virtual exercise trend will grow at the current rate. If you think there was a temporary boost due to the pandemic, you would not bet on it... On the other hand, you think at-home workouts will continue to grow (like WFH), I do see the case for investing in the best names like PTON...

 

To me, that's the bottom line and it's almost fruitless to talk around other points... I guess this is true with many high-growth stocks.  ::)

[widenthemoat]

Not bashing it. But was there any post on this that looked like an investment analysis? Off balance sheet - the brand and community is a valuable asset. Not sure how that translates into a great business. It maybe similar to gymshark - where it’s a clothing store worth $1B in 10 years.

 

Think there’s easier ways to make money. Congrats to the longs, hope the investment continues to pay dividends.

 

I keep seeing how it must be a fad because everything else in the exercise space has been a fad in the past...nothing specific to the company or the product though. That's not analysis, that's lazy.

 

 

Over a million connected subscribers and rapidly growing (as are workouts per mo per subscription), $1.5B net cash on the balance sheet, $500M FCF TTM, & they are buying Precor, struggling to meet demand...so what's your bearish price target based on all this?

 

What happens to capacity levels once they meet this literally once-in-a-hundred year demand due to a pandemic coupled with massive fiscal stimulus that gives people the $ to pay for the product?

 

Reasonable people can come to different conclusions on these things, and you add ZERO to the discussion by regurgitating the company's press release. Color me skeptical that the TTM FCF or Forward FCF estimates are levels from which Peloton can grow from once they meet this demand.

 

Yes of course, it’s all pandemic induced! And all those upper middle class types who are buying this must be eligible for stim checks!

 

Apparently I’m “repeating press releases” by quoting figures from the financial statements and actual subscriber counts...lol...

 

And what are you adding exactly? What’s your valuation number?

 

No horse in this race, but I'll take a shot at valuation. As you mentioned, let's use $500.0m as our starting point for distributable cash flow. Well, assuming they didn't want to grow anymore, they would distribute all of that annually. I would probably be willing to pay $5.0 billion or so for that cash flow stream. Obviously, the play here is to grow the business and the brand, so we won't be seeing any dividends for a long time. Taking a look at the current cost of $45.0 billion, we clearly have quite a bit of growing to do before we get any reasonable rate of return on our investment in terms of actual cash distributions.

 

The two key questions here are when are we going to get the distributions and how much will they be? Assuming we got them today, I would be wiling to pay $45.0 billion for $4.5 billion of cash distributions every year. For every year we wait, that $4.5 billion of annual cash distributions needs to grow by 10% to compensate for my capital being tied up. Assuming we wait 15 years, that means PTON will need to be distributing ~$19.0b annually to investors.

 

What does $19.0b imply in terms of customers? Well, for simplicity, lets just assume no prices increases and no new products. Obviously this isn't reality and if you can fill in the numbers with realistic assumptions feel free to do so, I'm just giving a simple example. Each subscriber earns PTON $550 annually ($550m FCF / 1.0m subscribers). That means PTON will need to have ~35.0 million customers in 15 years time.

 

There are about 140m homes in the United States, and 50% of these are earning less than $75,000. That means there are probably 70 million homes that could even come close to affording an annual subscription to PTON. 50% of those homes will need to have a Peloton in 15 years time to make the valuation work. Keep in mind, this is for a 10% rate of return and ZERO margin of safety...

 

Note: I haven't looked into PTON at all. This was pulled together very quickly and I'm using simple estimates. Feel free to critique as needed, I just wanted to provide some numbers for the discussion.

[Dalal.Holdings]

 

No horse in this race, but I'll take a shot at valuation. As you mentioned, let's use $500.0m as our starting point for distributable cash flow. Well, assuming they didn't want to grow anymore, they would distribute all of that annually. I would probably be willing to pay $5.0 billion or so for that cash flow stream. Obviously, the play here is to grow the business and the brand, so we won't be seeing any dividends for a long time. Taking a look at the current cost of $45.0 billion, we clearly have quite a bit of growing to do before we get any reasonable rate of return on our investment in terms of actual cash distributions.

 

The two key questions here are when are we going to get the distributions and how much will they be? Assuming we got them today, I would be wiling to pay $45.0 billion for $4.5 billion of cash distributions every year. For every year we wait, that $4.5 billion of annual cash distributions needs to grow by 10% to compensate for my capital being tied up. Assuming we wait 15 years, that means PTON will need to be distributing ~$19.0b annually to investors.

 

What does $19.0b imply in terms of customers? Well, for simplicity, lets just assume no prices increases and no new products. Obviously this isn't reality and if you can fill in the numbers with realistic assumptions feel free to do so, I'm just giving a simple example. Each subscriber earns PTON $550 annually ($550m FCF / 1.0m subscribers). That means PTON will need to have ~35.0 million customers in 15 years time.

 

There are about 140m homes in the United States, and 50% of these are earning less than $75,000. That means there are probably 70 million homes that could even come close to affording an annual subscription to PTON. 50% of those homes will need to have a Peloton in 15 years time to make the valuation work. Keep in mind, this is for a 10% rate of return and ZERO margin of safety...

 

Note: I haven't looked into PTON at all. This was pulled together very quickly and I'm using simple estimates. Feel free to critique as needed, I just wanted to provide some numbers for the discussion.

 

Well, for starters: paying 10x multiple for a rapidly growing biz with a wide moat is laughable. Also, the FCF margins will be low when the revenue is coming from selling bikes/treadmills. When it becomes largely subscription revenues, the margins will obviously be much higher...

 

But i'll bite anyway: at 10x valuation which you use (many tech companies have historically been 30x or higher), PTON would be worth $5B + 1.5B net cash = $6.5B or about $22 per share. At least we have a bear case now. It hit this price in the last 12 mo and folks were still willing to say "it's a short".

 

My question to those who consider this a fad: "what would prove to you it's not a fad?"

 

 

Also to your point here:

that $4.5 billion of annual cash distributions needs to grow by 10% to compensate for my capital being tied up.

 

Is this your hurdle rate? What investment are you finding these days that you can buy at 10 P/E growing earnings 10% a year? You would consider such an investment to have "zero margin of safety"?

[widenthemoat]

 

No horse in this race, but I'll take a shot at valuation. As you mentioned, let's use $500.0m as our starting point for distributable cash flow. Well, assuming they didn't want to grow anymore, they would distribute all of that annually. I would probably be willing to pay $5.0 billion or so for that cash flow stream. Obviously, the play here is to grow the business and the brand, so we won't be seeing any dividends for a long time. Taking a look at the current cost of $45.0 billion, we clearly have quite a bit of growing to do before we get any reasonable rate of return on our investment in terms of actual cash distributions.

 

The two key questions here are when are we going to get the distributions and how much will they be? Assuming we got them today, I would be wiling to pay $45.0 billion for $4.5 billion of cash distributions every year. For every year we wait, that $4.5 billion of annual cash distributions needs to grow by 10% to compensate for my capital being tied up. Assuming we wait 15 years, that means PTON will need to be distributing ~$19.0b annually to investors.

 

What does $19.0b imply in terms of customers? Well, for simplicity, lets just assume no prices increases and no new products. Obviously this isn't reality and if you can fill in the numbers with realistic assumptions feel free to do so, I'm just giving a simple example. Each subscriber earns PTON $550 annually ($550m FCF / 1.0m subscribers). That means PTON will need to have ~35.0 million customers in 15 years time.

 

There are about 140m homes in the United States, and 50% of these are earning less than $75,000. That means there are probably 70 million homes that could even come close to affording an annual subscription to PTON. 50% of those homes will need to have a Peloton in 15 years time to make the valuation work. Keep in mind, this is for a 10% rate of return and ZERO margin of safety...

 

Note: I haven't looked into PTON at all. This was pulled together very quickly and I'm using simple estimates. Feel free to critique as needed, I just wanted to provide some numbers for the discussion.

 

Well, for starters: paying 10x multiple for a rapidly growing biz with a wide moat is laughable. Also, the FCF margins will be low when the revenue is coming from selling bikes/treadmills. When it becomes largely subscription revenues, the margins will obviously be much higher...

 

At 10x, PTON would be worth $5B + 1.5B net cash = $6.5B or about $22 per share. At least we have a bear case now. It hit this price in the last 12 mo and folks were still willing to say "it's a short".

 

My question to those who consider this a fad: "what would prove to you it's not a fad?"

 

 

Also to your point here:

that $4.5 billion of annual cash distributions needs to grow by 10% to compensate for my capital being tied up.

 

Is this your hurdle rate? What investment are you finding these days that you can buy at 10 P/E growing earnings 10% a year? You would consider such an investment to have "zero margin of safety"?

 

I don't think you understood my post correctly, I'm not saying its worth 10x earnings. I'm taking the current valuation and figuring out how much cash it needs to pay me to earn a 10% return. In 15 years it likely won't still be growing at 30% so I apply a 10x multiple at that point, which is when I assume distributions begin. This takes all of that growth into consideration. And yes, 10% is my hurdle rate. I view buying a stock through the lens that I would never sell. A 1.0% yield for the rest of my life doesn't sound very appealing to me. If you don't think of it that way you are speculating in my opinion, plain and simple.

[clutch]

My question to those who consider this a fad: "what would prove to you it's not a fad?"

 

Whether something is a fad or not is not provable either way at the moment. The only way we can find out is in the future if it sticks around or not.

 

Hence the need to speculate on investments like this. At best you could estimate the probabilities of PTON sticking vs. becoming a fad and apply them to your valuations accordingly.

[KJP]

Not bashing it. But was there any post on this that looked like an investment analysis? Off balance sheet - the brand and community is a valuable asset. Not sure how that translates into a great business. It maybe similar to gymshark - where it’s a clothing store worth $1B in 10 years.

 

Think there’s easier ways to make money. Congrats to the longs, hope the investment continues to pay dividends.

 

I keep seeing how it must be a fad because everything else in the exercise space has been a fad in the past...nothing specific to the company or the product though. That's not analysis, that's lazy.

 

 

Over a million connected subscribers and rapidly growing (as are workouts per mo per subscription), $1.5B net cash on the balance sheet, $500M FCF TTM, & they are buying Precor, struggling to meet demand...so what's your bearish price target based on all this?

 

What happens to capacity levels once they meet this literally once-in-a-hundred year demand due to a pandemic coupled with massive fiscal stimulus that gives people the $ to pay for the product?

 

Reasonable people can come to different conclusions on these things, and you add ZERO to the discussion by regurgitating the company's press release. Color me skeptical that the TTM FCF or Forward FCF estimates are levels from which Peloton can grow from once they meet this demand.

 

Yes of course, it’s all pandemic induced! And all those upper middle class types who are buying this must be eligible for stim checks!

 

Apparently I’m “repeating press releases” by quoting figures from the financial statements and actual subscriber counts...lol...

 

And what are you adding exactly? What’s your valuation number?

 

No horse in this race, but I'll take a shot at valuation. As you mentioned, let's use $500.0m as our starting point for distributable cash flow. Well, assuming they didn't want to grow anymore, they would distribute all of that annually. I would probably be willing to pay $5.0 billion or so for that cash flow stream. Obviously, the play here is to grow the business and the brand, so we won't be seeing any dividends for a long time. Taking a look at the current cost of $45.0 billion, we clearly have quite a bit of growing to do before we get any reasonable rate of return on our investment in terms of actual cash distributions.

 

The two key questions here are when are we going to get the distributions and how much will they be? Assuming we got them today, I would be wiling to pay $45.0 billion for $4.5 billion of cash distributions every year. For every year we wait, that $4.5 billion of annual cash distributions needs to grow by 10% to compensate for my capital being tied up. Assuming we wait 15 years, that means PTON will need to be distributing ~$19.0b annually to investors.

 

What does $19.0b imply in terms of customers? Well, for simplicity, lets just assume no prices increases and no new products. Obviously this isn't reality and if you can fill in the numbers with realistic assumptions feel free to do so, I'm just giving a simple example. Each subscriber earns PTON $550 annually ($550m FCF / 1.0m subscribers). That means PTON will need to have ~35.0 million customers in 15 years time.

 

There are about 140m homes in the United States, and 50% of these are earning less than $75,000. That means there are probably 70 million homes that could even come close to affording an annual subscription to PTON. 50% of those homes will need to have a Peloton in 15 years time to make the valuation work. Keep in mind, this is for a 10% rate of return and ZERO margin of safety...

 

Note: I haven't looked into PTON at all. This was pulled together very quickly and I'm using simple estimates. Feel free to critique as needed, I just wanted to provide some numbers for the discussion.

 

I did a similar back-of-the-envelope exercise several months ago on this thread when the stock was much cheaper:  https://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/peloton/msg413661/#msg413661

 

I also have no stake in Peloton either way, so I just do this stuff as a mental exercise.  I have a few questions about your quick overview:

 

1) Why is the TAM only the US?  It seems to me that a connected bike might sell anywhere in the world.

 

2)  Can your FCF/sub be right?  550/12 = $45/month at 100% FCF margin.  But a full membership is only $40/month and there are COGS and OpEx associated with them.  Does your $550 annual number include some FCF associated with equipment sales?  If so, I believe that FCF line item would scale down as a percentage of the business as a greater and greater percentage of subs come from the existing installed base rather than new purchases (if that's not happening, then the business likely has a big churn problem).  On the other hand, FCF margins are the subscription ought to rise over time with scale.

 

3)  I suspect that the current valuation includes significant option value for potentially large ancillary business lines like apparel, energy drinks, etc.  I have no idea how to value those options.

[Dalal.Holdings]

My question to those who consider this a fad: "what would prove to you it's not a fad?"

 

Whether something is a fad or not is not provable either way at the moment. The only way we can find out is in the future if it sticks around or not.

 

Hence the need to speculate on investments like this. At best you could estimate the probabilities of PTON sticking vs. becoming a fad and apply them to your valuations accordingly.

 

The company is about 9 years old. There are big companies who have indicated they want to enter the space (AAPL). How much time do you need until you can figure out whether this is a fad or not?

 

Yes, you need to do a probabilistic assessment, not just say "Lol, it's obviously a fad". My p(fad) is low and getting lower as time goes on.

[Dalal.Holdings]

 

I did a similar back-of-the-envelope exercise several months ago on this thread when the stock was much cheaper:  https://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/peloton/msg413661/#msg413661

 

I also have no stake in Peloton either way, so I just do this stuff as a mental exercise.  I have a few questions about your quick overview:

 

1) Why is the TAM only the US?  It seems to me that a connected bike might sell anywhere in the world.

 

2)  Can your FCF/sub be right?  550/12 = $45/month at 100% FCF margin.  But a full membership is only $40/month and there are COGS and OpEx associated with them.  Does your $550 annual number include some FCF associated with equipment sales?  If so, I believe that FCF line item would scale down as a percentage of the business as a greater and greater percentage of subs come from the existing installed base rather than new purchases (if that's not happening, then the business likely has a big churn problem).  On the other hand, FCF margins are the subscription ought to rise over time with scale.

 

3)  I suspect that the current valuation includes significant option value for potentially large ancillary business lines like apparel, energy drinks, etc.  I have no idea how to value those options.

 

You make some good points. To limit the TAM just to U.S. households is extremely narrow minded. For one, the Precor acquisition will open to PTON being able to install their software on existing commercial equipment throughout the world (existing gyms, hotels, etc)...

 

They are already doing well internationally in a few select countries. Apparel is a call option

[Broeb22]

75% of all the revenue PTON has ever generated has occurred in the last 2 years, and the percent is 90% for the last 3 years. Maybe it could still be a fad after all.

[Dalal.Holdings]

75% of all the revenue PTON has ever generated has occurred in the last 2 years, and the percent is 90% for the last 3 years. Maybe it could still be a fad after all.

 

When a company is growing revenue 100% per year, the most recent years will have a majority of the revenue. And only one of those years had the pandemic, so there's that.

 

If in years 1, 2, 3, 4, 5 I make $2, $4, $8, $16, $32, the majority of my revenue will have occurred in the latter years...

 

I wouldn't spin 100% revenue growth into a weakness though--in fact, that would perk up my attention, but that's me.

[widenthemoat]

Not bashing it. But was there any post on this that looked like an investment analysis? Off balance sheet - the brand and community is a valuable asset. Not sure how that translates into a great business. It maybe similar to gymshark - where it’s a clothing store worth $1B in 10 years.

 

Think there’s easier ways to make money. Congrats to the longs, hope the investment continues to pay dividends.

 

I keep seeing how it must be a fad because everything else in the exercise space has been a fad in the past...nothing specific to the company or the product though. That's not analysis, that's lazy.

 

 

Over a million connected subscribers and rapidly growing (as are workouts per mo per subscription), $1.5B net cash on the balance sheet, $500M FCF TTM, & they are buying Precor, struggling to meet demand...so what's your bearish price target based on all this?

 

What happens to capacity levels once they meet this literally once-in-a-hundred year demand due to a pandemic coupled with massive fiscal stimulus that gives people the $ to pay for the product?

 

Reasonable people can come to different conclusions on these things, and you add ZERO to the discussion by regurgitating the company's press release. Color me skeptical that the TTM FCF or Forward FCF estimates are levels from which Peloton can grow from once they meet this demand.

 

Yes of course, it’s all pandemic induced! And all those upper middle class types who are buying this must be eligible for stim checks!

 

Apparently I’m “repeating press releases” by quoting figures from the financial statements and actual subscriber counts...lol...

 

And what are you adding exactly? What’s your valuation number?

 

No horse in this race, but I'll take a shot at valuation. As you mentioned, let's use $500.0m as our starting point for distributable cash flow. Well, assuming they didn't want to grow anymore, they would distribute all of that annually. I would probably be willing to pay $5.0 billion or so for that cash flow stream. Obviously, the play here is to grow the business and the brand, so we won't be seeing any dividends for a long time. Taking a look at the current cost of $45.0 billion, we clearly have quite a bit of growing to do before we get any reasonable rate of return on our investment in terms of actual cash distributions.

 

The two key questions here are when are we going to get the distributions and how much will they be? Assuming we got them today, I would be wiling to pay $45.0 billion for $4.5 billion of cash distributions every year. For every year we wait, that $4.5 billion of annual cash distributions needs to grow by 10% to compensate for my capital being tied up. Assuming we wait 15 years, that means PTON will need to be distributing ~$19.0b annually to investors.

 

What does $19.0b imply in terms of customers? Well, for simplicity, lets just assume no prices increases and no new products. Obviously this isn't reality and if you can fill in the numbers with realistic assumptions feel free to do so, I'm just giving a simple example. Each subscriber earns PTON $550 annually ($550m FCF / 1.0m subscribers). That means PTON will need to have ~35.0 million customers in 15 years time.

 

There are about 140m homes in the United States, and 50% of these are earning less than $75,000. That means there are probably 70 million homes that could even come close to affording an annual subscription to PTON. 50% of those homes will need to have a Peloton in 15 years time to make the valuation work. Keep in mind, this is for a 10% rate of return and ZERO margin of safety...

 

Note: I haven't looked into PTON at all. This was pulled together very quickly and I'm using simple estimates. Feel free to critique as needed, I just wanted to provide some numbers for the discussion.

 

I did a similar back-of-the-envelope exercise several months ago on this thread when the stock was much cheaper:  https://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/peloton/msg413661/#msg413661

 

I also have no stake in Peloton either way, so I just do this stuff as a mental exercise.  I have a few questions about your quick overview:

 

1) Why is the TAM only the US?  It seems to me that a connected bike might sell anywhere in the world.

 

2)  Can your FCF/sub be right?  550/12 = $45/month at 100% FCF margin.  But a full membership is only $40/month and there are COGS and OpEx associated with them.  Does your $550 annual number include some FCF associated with equipment sales?  If so, I believe that FCF line item would scale down as a percentage of the business as a greater and greater percentage of subs come from the existing installed base rather than new purchases (if that's not happening, then the business likely has a big churn problem).  On the other hand, FCF margins are the subscription ought to rise over time with scale.

 

3)  I suspect that the current valuation includes significant option value for potentially large ancillary business lines like apparel, energy drinks, etc.  I have no idea how to value those options.

 

Lol, great minds think alike. I think your assumptions are probably more accurate, I didn't spend much time on mine. I just wanted to put together some actual numbers instead of talking about brands. I don't care how strong the brand is if it doesn't make any money. Auto makers have very strong brands in my opinion, but the businesses are crap. There is a difference. Either way, the argument to buy needs to arrange these variables in a certain way, figure out how much cash the company will disgorge, and then have a huge margin of safety on top of that. So basically whatever value we come up with using these variables, we should only be willing to pay half of that. That is a very tall order in my book.

[Broeb22]

Steven Wood bullishly writing about a stock continues to be a reliable bearish indicator.

 

Damn, was it higher interest rates, or was it reopening parts of NYC, or some other impossible to foresee catalyst that took this from the $160s to $120?

[Dalal.Holdings]

Steven Wood bullishly writing about a stock continues to be a reliable bearish indicator.

 

Damn, was it higher interest rates, or was it reopening parts of NYC, or some other impossible to foresee catalyst that took this from the $160s to $120?

 

So, to summarize:

 

Price goes to $25 to $160s: "Price is irrelevant, fundamentals are what matter"

 

Price goes from $160s to $120: "Lol, this was so predictable"

[Dalal.Holdings]

"It's just a fad"

 

"It's like GoPro"

 

"Wait till the Pandemic is over, sales will plummet" (looking forward to testing this hypothesis)

 

 

https://blog.onepeloton.com/peloton-beyonce-partnership/

 

https://www.marketwatch.com/story/adidas-announces-partnership-with-peloton-2021-03-16

 

https://www.nytimes.com/2021/03/16/arts/peloton-cody-rigsby-content.html

 

Part of the culture now...

 

I'm sure all the millenials (many of which are becoming first time homeowners) will ditch it to go back to the gym, just like they'll ditch Netflix to go back to the movie theaters...After all, I'm sure they'll find spin/exercise classes on par with Peloton at their local gym in the 'burbs...

[Broeb22]

I would mock this but I'm going to let the business performance (and by a very loose extension the stock price) do the talking.