PTON - Peloton

[Dalal.Holdings]

The thesis creep itself deserves an SNL skit. Expensive bike with an ipad ...fad...pandemic boost....delayed backlog....loosely correlated to stock performance ..what not. I'm sure there will be another coming soon in 6, 12, 18 months.

 

Just go read the TSLA thread for a lesson on how severe thesis creep can get.

[Broeb22]

https://www.bloomberg.com/news/articles/2021-03-17/peloton-ceo-foley-says-bike-supply-is-close-to-meeting-demand?utm_source=twitter&utm_medium=social&utm_campaign=socialflow-organic&cmpid=socialflow-twitter-business&utm_content=business

 

'Foley said Peloton currently has about 2 million users and that he believes the total addressable market is 200 million gym goers. He said Peloton could grow “100x before we’re starting to really feel like the growth may slow.”'

 

200 million gym-goer TAM, and he believes they can grow 100x from 2 million users before hitting a ceiling, so either he struggles with math or just knows he's full of shit and doesn't care.

 

https://www.glofox.com/blog/10-gym-membership-statistics-you-need-to-know/#:~:text=More%20than%20184%20million%20members,64.2%20million%20members%20in%202019.

 

Some highlights:

More than 184 million members (globally) belonged to nearly 210,000 health and fitness facilities.

In 2019, over 1 in 5 Americans belonged to at least one health club or studio in the US.

 

In 2019, more than 62.5 million gym members visited the gym 104 days per year while 9 million non-members hit the gym an average of 24 days a year.

About 18% of members actually went to the gym consistently.

Out of those who actively used their gym membership, 49.9% got to the gym at least twice a week. Another 24.2% made it to the gym at least once a week.

 

So if 18% of US gym members go to the gym consistently, that's 12 million people. So you're either betting on inertia (i.e. people paying for Peloton memberships and not using them) or Peloton taking a massive share of the market.

 

If I were you Dalal, these statistics and quotes from Foley would give me pause, but I know they won't because who wants to be constrained by mere numbers and valuation when we're talking about the MASSIVE GROWTH Peloton has.

 

 

[Broeb22]

Why don't we do a thought exercise on Peloton. Assume they do get to 50 million global users at maturity, 20% of the future TAM, more than AAPL's market share in smartphones. We'll also assume that the sales of bikes is about 20% of total exercise equipment sales (to maintain market share). So that's maybe $2 billion of sales at 40% gross margins? In the grand scheme of things, the profit contribution from that will be insignificant. We'll also assume that churn and customer growth offset each other so the 50 million stays constant. If those 50 million people pay $40 per month, they can earn $24 billion in revenue annually. Let's say they earn 50% operating margins on this revenue because despite the need for many more trainers to do classes in every major language in the world they are able to scale reasonably well. So they earn $12 billion of EBIT, and $9 billion after-tax. What multiple would you pay for that mature, very successful SaaS business? 20-25x?

 

$180-225 billion in value at some indefinite point in the future. They currently expect 1.3 million Connected Fitness Subscribers this fiscal year. To get to 50 million subs, they have to grow at 20% annually for 20 years to get to 50 million, which I think anyone would agree is a colossal success. I estimate they will generate $26 billion in cash flow in that 20 year period using some geometric averages. So, if you're going to discount the terminal value back to the present at 10% for 20 years, and add the cash generated in that time to the value, you get to about $37 billion in present value.

 

The value jumps a lot obviously if you use a lower discount rate, and feel free to do so. But I think this pretty well shows how the current price at $100 per share is giving A LOT of credit to this business.

 

Like I've said before, there are easier ways to make money than looking out 20 years to a pie-in-the-sky outcome.

[Gregmal]

Ok so let s try to lay out whats going on here...

 

Yesterday I highlighted a post from Dalal in December touting index inclusion and also stating "still waiting". Dalal said he wasnt "cheerleading" although going through the thread, thats debatable. Also, nothing wrong with cheerleading or being excited about an investment...Perhaps we can just agree to disagree in terms of the adjectives being used. Nevertheless...

 

"still waiting" was Dalal for the fad thesis to be proven....a mere 2 weeks from his previous post. I am not certain what experience one has with fad based investments, but if in that 2 week window you were expecting the fad thesis to be disproven....thats pretty elementary.

 

The time line has been laid out several times, by several different people. Coming in every two weeks or two months while many places are STILL on lockdowns or facing severe state induced covid related restrictions....not sure what you're not understanding or trying to accomplish...

 

You are also now claiming that current sales and backlogs are not covid enhanced....not even sure how to respond to that.

 

Also, you are now calling insider sales, "thesis creep". I am not sure if you understand the term thesis creep if discussing insider sales is something you think adds to the bull case. Its important because insiders obviously find selling at these prices attractive. Not to mention you dont find the stock worth owning either, evidenced by the fact that you sold it.

 

Similar to Tesla, you made a nice "trade"....you made money. Good for you. But dont be like the people you mock such as Andrew Left/Citron and trade momentum while touting fundamentals...You sold Tesla at $800 pre split and continue to roam the thread mocking people. Now you're doing the same here.

[Broeb22]

Interesting data points on here on fitness apps. I think it captures all app downloads, not just those who have purchased hardware with it (whom I would assume are stickier customers) but nothing in here suggests Peloton has any kind of special advantage in retention for Peloton's app over others.

 

In January 2021, Peloton app downloads declined 25% YoY, vs. a 10% decline for the entire category.

App 30-day retention for Peloton was 8.2%, meaning 92% of app downloads rolled off relatively quickly.

 

Maybe we will find out about Peloton within 12 months, but I'm still going to think about it longer term. Maybe there will be an opportunity to go long.

 

https://blog.apptopia.com/health-fitness-app-performance-january-21-device-connected-apps-see-revenue-grow

[Dalal.Holdings]

Ok so let s try to lay out whats going on here...

Oh boy...  ::)

 

Yesterday I highlighted a post from Dalal in December touting index inclusion and also stating "still waiting". Dalal said he wasnt "cheerleading" although going through the thread, thats debatable. Also, nothing wrong with cheerleading or being excited about an investment...Perhaps we can just agree to disagree in terms of the adjectives being used. Nevertheless...

 

Please point to the "adjectives" here:

 

Added to the Nasdaq 100

 

I’m still waiting for the Peloton bikes to become drying racks because I was told “all exercise trends are short lived fads” and “this is just like GoPro”.

 

I don't see any "adjectives". If you want to draw a connection between Nasdaq 100 inclusion and Pelotons being drying racks, that's on you. Not the connection I was making between the two lines in this post, but I guess you made it in your own reading. I don't draw connections between index inclusion and how customers use a company's products. Sorry if that's what you inferred. Seemed like common sense to me.

 

 

"still waiting" was Dalal for the fad thesis to be proven....a mere 2 weeks from his previous post. I am not certain what experience one has with fad based investments, but if in that 2 week window you were expecting the fad thesis to be disproven....thats pretty elementary.

 

The time line has been laid out several times, by several different people. Coming in every two weeks or two months while many places are STILL on lockdowns or facing severe state induced covid related restrictions....not sure what you're not understanding or trying to accomplish...

 

The "fad thesis" has been occurring much longer than 2 weeks, in fact over years including when Andrew Left made it in late 2019. It has thus far not been proven out. The burden of proof is on the bears because that is a core part of their thesis (all exercise trends are fads and this one is no different), not the longs. I am looking for evidence that bears are right and so far I see no compelling evidence.

 

You are also now claiming that current sales and backlogs are not covid enhanced....not even sure how to respond to that.

 

Please point out exactly where I did that. I made no such claim. In fact, 1 year ago I said the exact opposite:

https://www.cnbc.com/2020/05/06/peloton-pton-reports-fiscal-q3-2020-earnings.html

 

This co will only come out of this crisis stronger...

 

No doubt the pandemic boosted sales. My own thesis is that sales will continue strong > 30% growth per annum even after the pandemic. We'll have to see what happens in the next 12 mo and if it does, in my view it disproves the "it's just the pandemic" or "it's just a fad" thesis.

 

Also, you are now calling insider sales, "thesis creep". I am not sure if you understand the term thesis creep if discussing insider sales is something you think adds to the bull case. Its important because insiders obviously find selling at these prices attractive. Not to mention you dont find the stock worth owning either, evidenced by the fact that you sold it.

 

Similar to Tesla, you made a nice "trade"....you made money. Good for you. But dont be like the people you mock such as Andrew Left/Citron and trade momentum while touting fundamentals...You sold Tesla at $800 pre split and continue to roam the thread mocking people. Now you're doing the same here.

 

Here's an example of Thesis Creep:

"Just wait until GM makes an EV, Tesla will lose sales to the Bolt"

"Just wait until the i8 is out: BMW is coming"

"Just wait until the Taycan is out: Porsche is coming"

"Just wait for the VW ID.4"

 

Or with Peloton:

"It's just a fad"

 

"They're only doing well now because of the pandemic"

 

"Let's move onto another argument: look at the insider sales!"

[Dalal.Holdings]

Why don't we do a thought exercise on Peloton. Assume they do get to 50 million global users at maturity, 20% of the future TAM, more than AAPL's market share in smartphones. We'll also assume that the sales of bikes is about 20% of total exercise equipment sales (to maintain market share). So that's maybe $2 billion of sales at 40% gross margins?

 

In your model, if the sales of bikes is 10 million per year at $2000 per bike (your model, not mine), that translates into $20 Billion of sales, not $2 Billion. Off by a factor of 10. This alone blows up your model.

 

In the grand scheme of things, the profit contribution from that will be insignificant. We'll also assume that churn and customer growth offset each other so the 50 million stays constant. If those 50 million people pay $40 per month, they can earn $24 billion in revenue annually. Let's say they earn 50% operating margins on this revenue because despite the need for many more trainers to do classes in every major language in the world they are able to scale reasonably well. So they earn $12 billion of EBIT, and $9 billion after-tax. What multiple would you pay for that mature, very successful SaaS business? 20-25x?

 

$180-225 billion in value at some indefinite point in the future. They currently expect 1.3 million Connected Fitness Subscribers this fiscal year. To get to 50 million subs, they have to grow at 20% annually for 20 years to get to 50 million, which I think anyone would agree is a colossal success. I estimate they will generate $26 billion in cash flow in that 20 year period using some geometric averages. So, if you're going to discount the terminal value back to the present at 10% for 20 years, and add the cash generated in that time to the value, you get to about $37 billion in present value.

 

The value jumps a lot obviously if you use a lower discount rate, and feel free to do so. But I think this pretty well shows how the current price at $100 per share is giving A LOT of credit to this business.

 

Like I've said before, there are easier ways to make money than looking out 20 years to a pie-in-the-sky outcome.

 

I don't pay attention to Foley's claims. If in the next 10 years they get to 10 million connected subs + 10 million non-connected subs/streamers + roll out their service to existing precor machines around the world (for a recurring fee) + commercial/hotel sales + a mildly successful apparel/accessory line, I'll be sitting happy.

[Gregmal]

Peloton was a $30 stock pre covid. Its a tough argument to make that the company was destined for greatness before the pandemic. Its basically the poster child for stay at home/covid plays; perhaps only outdone by Zoom.

 

Ive got puts on a basket of stuff like this and individually its not a meaningful or high conviction idea, but if you're long, I think theres much easier ways to make money. You're not long youve said so I am not sure where your bread gets buttered either way, unless I am missing something. And if Q2/Q3/Q4 '21 sales are up 30% year over year, that would be a pretty remarkable feat.

[Dalal.Holdings]

Yep--we'll see in the next 12 mo. For me, it's shown enough evidence that it's a unique, powerful brand with staying power and a good amount of potential growth going forward.

 

My aim is to prove/disprove the "just a fad" or "successful because of the pandemic but sales will drop off" thesis. I think next 4 qtrs will be enough to do that looking at YoY growth.

 

And if it drops significantly (doesn't have to get anywhere near $30), I'll get greedy unless the incoming evidence goes the other way.

[Broeb22]

 

Or with Peloton:

"It's just a fad"

 

"They're only doing well now because of the pandemic"

 

"Let's move onto another argument: look at the insider sales!"

 

Is it possible these 3 statements are all be part of one coherent thesis and not thesis creep?

 

If I believe that this company is selling a fad product/service, then it would also make sense for me to believe a spike in sales that clearly benefits what they're selling is exaggerating the underlying value of the company, and seeing insiders sell consistently and significantly might further confirm that the people with the most information about the company don't believe the bullshit they say in public and that the company's stock price gives way too much credit for future success.  I think all of those ideas can be, and too a large extent, are internally consistent.

 

But I understand we just don't see things the same way, and that's ok. We're all capable of learning something from how this all turns out, though I have my doubts on if you have the capacity to admit where and when you are wrong.

[Broeb22]

Why don't we do a thought exercise on Peloton. Assume they do get to 50 million global users at maturity, 20% of the future TAM, more than AAPL's market share in smartphones. We'll also assume that the sales of bikes is about 20% of total exercise equipment sales (to maintain market share). So that's maybe $2 billion of sales at 40% gross margins?

 

In your model, if the sales of bikes is 10 million per year at $2000 per bike (your model, not mine), that translates into $20 Billion of sales, not $2 Billion. Off by a factor of 10. This alone blows up your model.

 

 

Dalal, do me (and yourself) a favor and research the annual sales of exercise equipment annually. What's the number? I'm finding between $10-20 billion per year. So what market share do you think a super-premium bike/treadmill is going to garner? I would bet under 25% unless they change their pricing. I was estimating bike sales in maturity (unless you think people will be buying new bikes like they buy iPads).

 

Throwing out a wild-ass guess of 10 million bikes per year is just that, a guess. If you use any facts that I provided (or feel free to find your own) about gym users, at 10 million bikes per year, every person with a gym membership in the US would have a bike. So now who do you sell to?

 

Hey good luck to you in your trading endeavors. Just please stop pretending that you are making investments based on the long-term.

[Dalal.Holdings]

Why don't we do a thought exercise on Peloton. Assume they do get to 50 million global users at maturity, 20% of the future TAM, more than AAPL's market share in smartphones. We'll also assume that the sales of bikes is about 20% of total exercise equipment sales (to maintain market share). So that's maybe $2 billion of sales at 40% gross margins?

 

In your model, if the sales of bikes is 10 million per year at $2000 per bike (your model, not mine), that translates into $20 Billion of sales, not $2 Billion. Off by a factor of 10. This alone blows up your model.

 

 

Dalal, do me (and yourself) a favor and research the annual sales of exercise equipment annually. What's the number? I'm finding between $10-20 billion per year. So what market share do you think a super-premium bike/treadmill is going to garner? I would bet under 25% unless they change their pricing. I was estimating bike sales in maturity (unless you think people will be buying new bikes like they buy iPads).

 

Throwing out a wild-ass guess of 10 million bikes per year is just that, a guess. If you use any facts that I provided (or feel free to find your own) about gym users, at 10 million bikes per year, every person with a gym membership in the US would have a bike. So now who do you sell to?

 

Hey good luck to you in your trading endeavors. Just please stop pretending that you are making investments based on the long-term.

 

So I point out a major (yet basic) math error in YOUR model and this is your response? Lol. Good luck.

[Broeb22]

You didn’t point out a major error. You just don’t understand the assumptions I was making.

 

Move on to your next trade, Dalal. Congrats you won this pump and dump scheme.

[Dalal.Holdings]

You didn’t point out a major error. You just don’t understand the assumptions I was making.

 

Move on to your next trade, Dalal. Congrats you won this pump and dump scheme.

 

On rereading, I did misunderstand what you were saying. Fair enough--I thought you were the one positing 10 million bike sales but you were looking at the current total exercise equipment market and taking 20% of that.

 

I'm not modeling rigid forecasts like you are with a black swan product like this is. I wonder what the "total mobile phone market" was before the iPhone. Or the total "mobile music player market" before the iPod. Or the "total EV market" before Tesla. (Answer: all were a lot smaller and using such analysis was useless and led you to the wrong conclusion).

 

Yes, I view this as an industry-changing product line like the iPod, iPhone, and Tesla cars were to their respective markets, so using existing industry statistics is meaningless.

 

As I said:

 

I don't pay attention to Foley's claims. If in the next 10 years they get to 10 million connected subs + 10 million non-connected subs/streamers + roll out their service to existing precor machines around the world (for a recurring fee) + commercial/hotel sales + a mildly successful apparel/accessory line, I'll be sitting happy.

 

It's not a pump and dump, it's a wonderful business and brand in the making. Sorry that gets you so triggered...

[Dalal.Holdings]

Looks like "the fad" is alive and well. I wonder which one they'll choose:

 

 

https://twitter.com/Gold_Mansack/status/1372677527605493769?s=20

[Ice77]

Why don't we do a thought exercise on Peloton. Assume they do get to 50 million global users at maturity, 20% of the future TAM, more than AAPL's market share in smartphones. We'll also assume that the sales of bikes is about 20% of total exercise equipment sales (to maintain market share). So that's maybe $2 billion of sales at 40% gross margins? In the grand scheme of things, the profit contribution from that will be insignificant. We'll also assume that churn and customer growth offset each other so the 50 million stays constant. If those 50 million people pay $40 per month, they can earn $24 billion in revenue annually. Let's say they earn 50% operating margins on this revenue because despite the need for many more trainers to do classes in every major language in the world they are able to scale reasonably well. So they earn $12 billion of EBIT, and $9 billion after-tax. What multiple would you pay for that mature, very successful SaaS business? 20-25x?

 

$180-225 billion in value at some indefinite point in the future. They currently expect 1.3 million Connected Fitness Subscribers this fiscal year. To get to 50 million subs, they have to grow at 20% annually for 20 years to get to 50 million, which I think anyone would agree is a colossal success. I estimate they will generate $26 billion in cash flow in that 20 year period using some geometric averages. So, if you're going to discount the terminal value back to the present at 10% for 20 years, and add the cash generated in that time to the value, you get to about $37 billion in present value.

 

The value jumps a lot obviously if you use a lower discount rate, and feel free to do so. But I think this pretty well shows how the current price at $100 per share is giving A LOT of credit to this business.

 

Like I've said before, there are easier ways to make money than looking out 20 years to a pie-in-the-sky outcome.

 

This is literally like the Bill Gates comment about the TAM of a floppy disk market. You created a post about Cricut elsewhere - know who provides BNPL option there? Affirm. They are also the largest counterparty for Peloton (30% of sales). These are mostly buyers who otherwise would not be able to afford or buy this bike or tread. Affirm makes available Buy Now Pay Later (BNPL) option. It expands TAM for durable companies including Peloton, Mirror, Cricut etc. It's the razor getting installed in a household so they can sell the materials/subscriptions later (in the case of Cricut) and Subscriptions/Apparel/Weights/Other software subscriptions/Other accessories to those users in case of Peloton. It is myopic to look at it from the narrow lens of past TAM. It's like those CPG companies back in late 1980s who thought Coffee drinking was a basically mature industry. Howard Schultz proved otherwise as he found a model that drove 100%+ CAGR for years when the CPG companies were barely growing the category 3-5%. 

[Dalal.Holdings]

Don't forget--

 

The reason why the TAM of EV's was very small before Tesla was because no one made good EVs

 

Same with iPod and iPhone and their respective markets.

 

Most exercise equipment became clothe hangers because of terrible UI and setup that didn't get you back on the treadmill/bike. Peloton has changed that with a fundamentally distinct and superior product that motivates people to use it far more than others. The TAM of old bikes/treadmills is not the right metric.

[Broeb22]

If giving away these bikes as part of a corporate wellness program is an indication that people are ravenously craving these products, I would be worried about my bullish thesis.

 

Also, giving bikes to 1,000 Big City traders and bankers is doing nothing to expand the market for Peloton.

 

So congrats, this proves absolutely nothing.

[Dalal.Holdings]

8)

If giving away these bikes as part of a corporate wellness program is an indication that people are ravenously craving these products, I would be worried about my bullish thesis.

 

Also, giving bikes to 1,000 Big City traders and bankers is doing nothing to expand the market for Peloton.

 

So congrats, this proves absolutely nothing.

 

You sound mad bro...  ;D

[Broeb22]

Pump and Dump Dalal...that might be the most insightful thing you’ve ever said on this thread, bro.

[Dalal.Holdings]

Show me on this doll where PTON hurt you...

 

Who knew that expressing my opinion on a stock and disclosing when I buy and sell something (when I am under zero obligation to do so) is “Pump and dump”. And I guess talking about a business’ prospects even when one doesn’t hold a position is wrong? Why does this forum exist then?

 

I mean you seem confused that I sold and was still positive about the business... That begs the question: what exactly is it that you do here? Are you short? If not, according to your own logic, why are you here? And if you are short, is that also morally wrong that you express negative views while being short?

 

Some interesting moral questions that are actually not...

 

Don’t worry, I’m sure your employer will get you a Peloton bike soon!  ;)

[Broeb22]

Whatever you say Pump and Dump Dalal.

[Gregmal]

Definitely in the news a bit recently.

 

You had the unfortunate death of the young child, and then this...

 

https://www.telegraph.co.uk/news/2021/03/19/joe-biden-trips-stumbles-three-times-boarding-air-force-one/

 

"Mr. Biden, who has said he uses a Peloton bike to keep fit, often makes a point of jogging in a show of his fitness"

 

Hopefully PTON launches a stairmaster soon.

[SouthernYankee]

Chevy Chase should call Peloton to be the spokesperson! You know SNL will NOT be calling him.

[Broeb22]

https://www.google.com/amp/s/www.cnet.com/google-amp/news/apple-fitness-plus-vs-peloton-which-exercise-streaming-service-is-better/

 

https://www.google.com/amp/s/www.businessinsider.com/peloton-cuts-cost-digital-membership-annoying-customers-2019-12%3Famp

 

Hey Pump and Dump,

 

This article certainly doesn’t paint Peloton as a service that the average Joe or Jane is going to want.

 

It also doesn’t make sense that the subscription costs MORE when you buy the equipment. If other apps are charging $10-15 per month and Peloton itself offers an app-only experience in that range, why would I pay $40 just to have access to the “full immersive experience”.

 

Seems like they’re also alienating their most loyal customers by dropping the price of the plain old app but keeping the All-Access price high.

 

I forgot to factor this potential revenue compression into my long-term model. If Peloton sees any sales weakness they will likely pull this lever to get people to stay/join in the first place. Maybe they only end up with $20-25 per month long-term.

 

Of course, you think this suggestion is ludicrous, and that’s why you’re Pump and Dump Dalal, bro.