PTON - Peloton

[Dalal.Holdings]

What people don’t understand when they criticize this company’s products as “a bike with a screen on it” is that exercise—particularly cardio—has a big motivation hump for the individual. It’s absolutely essential that the person exercising makes a regular habit of it, but very hard to achieve. It’s why most bikes end up as drying racks...

 

Peloton addresses that beautifully as the anecdotes on here indicate. And no, Nautilus or one of the copycats will not be as effective at achieving this.

 

There is a moat here.

 

At some point I would have said that this company would have been the perfect target for AAPL with all its cash on hand and a significant overlap in customer base, but I do not think Cook is visionary enough to see it. Would certainly do better than the Beats acquisition.

[Castanza]

What people don’t understand when they criticize this company’s products as “a bike with a screen on it” is that exercise—particularly cardio—has a big motivation hump for the individual. It’s absolutely essential that the person exercising makes a regular habit of it, but very hard to do. Peloton addresses that beautifully as the anecdotes on here indicate. And no, Nautilus or one of the copycats will not be as effective at achieving this.

 

There is a moat here.

 

If PTON is going to have a moat it's not going to be found in the equipment. It's going to be in the software/platform and quality of instructors. There are a lot of people out there buying either the Sunny Health & Fitness bike ($300) or the  Keiser M3i to avoid monthly bike fees. Couple this with the Pton app and you have a peloton lite version. You miss out on the functionality of riding stats, but to some that's not as important as having good trainers.

 

 

[Dalal.Holdings]

What people don’t understand when they criticize this company’s products as “a bike with a screen on it” is that exercise—particularly cardio—has a big motivation hump for the individual. It’s absolutely essential that the person exercising makes a regular habit of it, but very hard to do. Peloton addresses that beautifully as the anecdotes on here indicate. And no, Nautilus or one of the copycats will not be as effective at achieving this.

 

There is a moat here.

 

If PTON is going to have a moat it's not going to be found in the equipment. It's going to be in the software/platform and quality of instructors. There are a lot of people out there buying either the Sunny Health & Fitness bike ($300) or the  Keiser M3i to avoid monthly bike fees. Couple this with the Pton app and you have a peloton lite version. You miss out on the functionality of riding stats, but to some that's not as important as having good trainers.

 

Yep—that’s why they invest heavily in their production studios in places like NYC. It’s tv level production. You’re not going to win with a guy at home in his sweatpants running a class (though maybe that’s what they are doing now w covid lockdowns).

[Kaegi2011]

What people don’t understand when they criticize this company’s products as “a bike with a screen on it” is that exercise—particularly cardio—has a big motivation hump for the individual. It’s absolutely essential that the person exercising makes a regular habit of it, but very hard to do. Peloton addresses that beautifully as the anecdotes on here indicate. And no, Nautilus or one of the copycats will not be as effective at achieving this.

 

There is a moat here.

 

If PTON is going to have a moat it's not going to be found in the equipment. It's going to be in the software/platform and quality of instructors. There are a lot of people out there buying either the Sunny Health & Fitness bike ($300) or the  Keiser M3i to avoid monthly bike fees. Couple this with the Pton app and you have a peloton lite version. You miss out on the functionality of riding stats, but to some that's not as important as having good trainers.

 

Isn't this a win/win situation?  The app's marginal cost is zero, and if consumers like certain instructors and like riding with their friends, then the cost of $10 bucks/month is prob not going to dissaude them to switch to a cheaper alternative. 

[Dalal.Holdings]

What people don’t understand when they criticize this company’s products as “a bike with a screen on it” is that exercise—particularly cardio—has a big motivation hump for the individual. It’s absolutely essential that the person exercising makes a regular habit of it, but very hard to do. Peloton addresses that beautifully as the anecdotes on here indicate. And no, Nautilus or one of the copycats will not be as effective at achieving this.

 

There is a moat here.

 

If PTON is going to have a moat it's not going to be found in the equipment. It's going to be in the software/platform and quality of instructors. There are a lot of people out there buying either the Sunny Health & Fitness bike ($300) or the  Keiser M3i to avoid monthly bike fees. Couple this with the Pton app and you have a peloton lite version. You miss out on the functionality of riding stats, but to some that's not as important as having good trainers.

 

Isn't this a win/win situation?  The app's marginal cost is zero, and if consumers like certain instructors and like riding with their friends, then the cost of $10 bucks/month is prob not going to dissaude them to switch to a cheaper alternative.

 

Precisely. With just the app it becomes more akin to NFLX. The customers who own the bike will have a stickier relationship though.

[Castanza]

What people don’t understand when they criticize this company’s products as “a bike with a screen on it” is that exercise—particularly cardio—has a big motivation hump for the individual. It’s absolutely essential that the person exercising makes a regular habit of it, but very hard to do. Peloton addresses that beautifully as the anecdotes on here indicate. And no, Nautilus or one of the copycats will not be as effective at achieving this.

 

There is a moat here.

 

If PTON is going to have a moat it's not going to be found in the equipment. It's going to be in the software/platform and quality of instructors. There are a lot of people out there buying either the Sunny Health & Fitness bike ($300) or the  Keiser M3i to avoid monthly bike fees. Couple this with the Pton app and you have a peloton lite version. You miss out on the functionality of riding stats, but to some that's not as important as having good trainers.

 

Isn't this a win/win situation?  The app's marginal cost is zero, and if consumers like certain instructors and like riding with their friends, then the cost of $10 bucks/month is prob not going to dissaude them to switch to a cheaper alternative.

 

Precisely. With just the app it becomes more akin to NFLX. The customers who own the bike will have a stickier relationship though.

 

Near term issues seem to be related to their logistics. Most areas don't get the "white glove" service that is promised(big deal? probably not). However, I've seen reports of customers taking delivery of un-assembled bikes simply to try and beat the 1-2 month shipping backlog. Draw from that what you may.

 

Simply out of curiosity I'd like to see what they are paying these instructors. If I had to guess I bet they are paying out the ass and also have some solid stock option plan as well.

 

I don't have a position or nor do I own a bike. But I think it's a false equivalence to compare this to the bowflex type trend of previous decades. PTON is about software integration/platform building as well as social network stickiness.

[KJP]

And no, Nautilus or one of the copycats will not be as effective at achieving this.

 

There is a moat here.

 

 

If the model proves profitable, what is there about it that can't be copied by a competitor?  Or do you believe there will be a significant first-mover advantage that would be very difficult to overcome?

[Dalal.Holdings]

And no, Nautilus or one of the copycats will not be as effective at achieving this.

 

There is a moat here.

 

 

If the model proves profitable, what is there about it that can't be copied by a competitor?  Or do you believe there will be a significant first-mover advantage that would be very difficult to overcome?

 

The latter. Also their leaderboard tech which they successfully forced Flywheel into legal settlement. I think the chances are good they take out Echelon in court (or outside of it).

[thepupil]

In exchanging e-mails with some friends about this I sent the below vision I had recently of a Valuesaur museum to be located in the vacant offices of hedge fund central in NYC.

 

And over here we find the most intact fossil of the Valuesaurus Rex, who went extinct during the Great Pandemic in the late stages of the Softwareeatstheworld Era. This fossil is particularly significant as extraordinary rare physical certificates of real estate and insurance companies were found preserved in amber in the same cave.

 

Let’s move onto the Buffettosaurus.

 

when this IPO’d I read the S-1 and talked to a lot of my friends with the bikes. My gut was the TAM was lower than projected because of cost but the pushback I received on the value proposition relative to alternatives led me to conclude this had more potential than my gut reaction. Of course any kind of quantitative attempt at valuing the earnings as a sum of the subscription revenue at a very generous multiple  and the 30% margin durable good that doesn’t need to be replaced for a long time at a low multiple led me to conclude it was pricing in pretty wide adoption, but I came away with the view that wide adoption was definitely a node in the probability tree and a higher probability than most would assume.

 

my wife wants a Soulcycle bike because "they don't ride to the beat" at Peloton...but Soulcycle can't seem to get their act together/manufacture and distribute. given our household Soulcycle expenditures the IRR on a Peloton purchase would be high.

[Castanza]

And no, Nautilus or one of the copycats will not be as effective at achieving this.

 

There is a moat here.

 

 

If the model proves profitable, what is there about it that can't be copied by a competitor?  Or do you believe there will be a significant first-mover advantage that would be very difficult to overcome?

 

Go up to any person on the street and ask them to name an exercise bike company. I guarantee the majority of people will say "Peloton". At this point PTON is better at marketing and branding themselves as a premium lifestyle choice. Similar to what Apple has done.

[Dalal.Holdings]

In exchanging e-mails with some friends about this I sent the below vision I had recently of a Valuesaur museum to be located in the vacant offices of hedge fund central in NYC.

 

And over here we find the most intact fossil of the Valuesaurus Rex, who went extinct during the Great Pandemic in the late stages of the Softwareeatstheworld Era. This fossil is particularly significant as extraordinary rare physical certificates of real estate and insurance companies were found preserved in amber in the same cave.

 

Let’s move onto the Buffettosaurus.

 

when this IPO’d I read the S-1 and talked to a lot of my friends with the bikes. My gut was the TAM was lower than projected because of cost but the pushback I received on the value proposition relative to alternatives led me to conclude this had more potential than my gut reaction. Of course any kind of quantitative attempt at valuing the earnings as a sum of the subscription revenue at a very generous multiple  and the 30% margin durable good that doesn’t need to be replaced for a long time at a low multiple led me to conclude it was pricing in pretty wide adoption, but I came away with the view that wide adoption was definitely a node in the probability tree and a higher probability than most would assume.

 

my wife wants a Soulcycle bike because "they don't ride to the beat" at Peloton...but Soulcycle can't seem to get their act together/manufacture and distribute. given our household Soulcycle expenditures the IRR on a Peloton purchase would be high.

 

The problem with “value investing” is that the Ben Graham style worked well mainly in the immediate decades after the Depression. And it probably works well for short periods (like when the entire market takes a big hit in a crisis). After that, you needed to wade into the more murky Munger waters where harder to pin things like behavioral aspects of consumers become much more important.

[KJP]

And no, Nautilus or one of the copycats will not be as effective at achieving this.

 

There is a moat here.

 

 

If the model proves profitable, what is there about it that can't be copied by a competitor?  Or do you believe there will be a significant first-mover advantage that would be very difficult to overcome?

 

Go up to any person on the street and ask them to name an exercise bike company. I guarantee the majority of people will say "Peloton". At this point PTON is better at marketing and branding themselves as a premium lifestyle choice. Similar to what Apple has done.

 

That may well be true today, just as it was once true of Yahoo and MySpace.  My question was about tomorrow on the assumption that this business model proves profitable. 

[Broeb22]

This reminds me of Herbalife. The shorts are all cheap introverts and don't understand that most people need human reinforcement, eg a coach or a class to lose weight.

 

Look, Peloton is not a new concept. It's simply not. There have been workout videos and home workout equipment since at least the dawn of Television.

 

Someone please show me the long-term use statistics on these home exercise pieces of equipment/videos.

 

And I'll grant you that most people need human reinforcement, such as a coach or a class. How many exercise studios are there out there? How many of them earn an economically significant/attractive return to their owners/operators? Would you want to compete against an irrational competitor? That's pretty much what Peloton does because their competition is constantly evolving with new fads (Barre, OrangeTheory, Spin, Crossfit, Yoga, Pilates, Insanity, Resistance Band Training, Zumba, Jazzercise, the Shake Weight, and the list could go on and on). That's a very competitive environment where market share changes quickly. If there is one thing I've learned, a business is much less likely to providing enduring investment returns if market share in that industry changes at a rapid pace (meaning relative market shares can move dramatically over the course of a decade). I think exercise equipment probably witnesses dramatic changes in customer behavior on a more frequent pace than that.

 

 

 

 

[thepupil]

In exchanging e-mails with some friends about this I sent the below vision I had recently of a Valuesaur museum to be located in the vacant offices of hedge fund central in NYC.

 

And over here we find the most intact fossil of the Valuesaurus Rex, who went extinct during the Great Pandemic in the late stages of the Softwareeatstheworld Era. This fossil is particularly significant as extraordinary rare physical certificates of real estate and insurance companies were found preserved in amber in the same cave.

 

Let’s move onto the Buffettosaurus.

 

when this IPO’d I read the S-1 and talked to a lot of my friends with the bikes. My gut was the TAM was lower than projected because of cost but the pushback I received on the value proposition relative to alternatives led me to conclude this had more potential than my gut reaction. Of course any kind of quantitative attempt at valuing the earnings as a sum of the subscription revenue at a very generous multiple  and the 30% margin durable good that doesn’t need to be replaced for a long time at a low multiple led me to conclude it was pricing in pretty wide adoption, but I came away with the view that wide adoption was definitely a node in the probability tree and a higher probability than most would assume.

 

my wife wants a Soulcycle bike because "they don't ride to the beat" at Peloton...but Soulcycle can't seem to get their act together/manufacture and distribute. given our household Soulcycle expenditures the IRR on a Peloton purchase would be high.

 

The problem with “value investing” is that the Ben Graham style worked well mainly in the immediate decades after the Depression. And it probably works well for short periods (like when the entire market takes a big hit in a crisis). After that, you needed to wade into the more murky Munger waters where harder to pin things like behavioral aspects of consumers become much more important.

 

I agree and only own a couple of net nets (including one recently purchased at 1/3 of cash!).

 

Despite my incessant real estate posts, real estate comprises 15%-20% of my parents diversified portfolio which owns un-Graham stuff like MSFT/GOOG/AAPL/FB/CRM/700HK via Prosus almost PINS but then she ran away from me, but is anchored with BRK/B as the largest position. I am personally more aggressively/heavily in real estate and have a less tech

 

I think pure Graham stuff is really hard to do for a lot of reasons and am not a pure Graham guy by any means; he would think my levered CRE investments are going to zero because of what happened to such things in the Depression.

 

But when you see things like SHOP at $85 billion or PTON, you nevertheless feel like a dinosaur. And let's not act like I'm being super forward thinking with my tech stocks either. I bought all those well after they became what they are.

 

Seeing where the puck is going at these sales multiples (SHOP on its sales, PTON on its subscriptions, or TSLA with its seeming fraudi-ness and stock levitation) is freaking hard. I mostly just look on with a mix of admiration, disgust, and confusion.

[Castanza]

And no, Nautilus or one of the copycats will not be as effective at achieving this.

 

There is a moat here.

 

 

If the model proves profitable, what is there about it that can't be copied by a competitor?  Or do you believe there will be a significant first-mover advantage that would be very difficult to overcome?

 

Go up to any person on the street and ask them to name an exercise bike company. I guarantee the majority of people will say "Peloton". At this point PTON is better at marketing and branding themselves as a premium lifestyle choice. Similar to what Apple has done.

 

That may well be true today, just as it was once true of Yahoo and MySpace.  My question was about tomorrow on the assumption that this business model proves profitable.

 

It's a valid point, and I am by no means saying there won't be competition. Just pointing out in the near term PTON definitely has an advantage. The big questions down the line I have no answer for. Also why I have no position. I just know the people who have them love them and don't shut the hell up about them. I've never heard someone brag about their Nordic Track or Echelon.

[merkhet]

What people don’t understand when they criticize this company’s products as “a bike with a screen on it” is that exercise—particularly cardio—has a big motivation hump for the individual. It’s absolutely essential that the person exercising makes a regular habit of it, but very hard to achieve. It’s why most bikes end up as drying racks...

 

Peloton addresses that beautifully as the anecdotes on here indicate. And no, Nautilus or one of the copycats will not be as effective at achieving this.

 

There is a moat here.

 

At some point I would have said that this company would have been the perfect target for AAPL with all its cash on hand and a significant overlap in customer base, but I do not think Cook is visionary enough to see it. Would certainly do better than the Beats acquisition.

 

+1

 

I have also been musing over whether Nike should try to own this. I can see a world in which Peloton heavily branches into apparel over time.

[Castanza]

This reminds me of Herbalife. The shorts are all cheap introverts and don't understand that most people need human reinforcement, eg a coach or a class to lose weight.

 

Look, Peloton is not a new concept. It's simply not. There have been workout videos and home workout equipment since at least the dawn of Television.

 

Someone please show me the long-term use statistics on these home exercise pieces of equipment/videos.

 

And I'll grant you that most people need human reinforcement, such as a coach or a class. How many exercise studios are there out there? How many of them earn an economically significant/attractive return to their owners/operators? Would you want to compete against an irrational competitor? That's pretty much what Peloton does because their competition is constantly evolving with new fads (Barre, OrangeTheory, Spin, Crossfit, Yoga, Pilates, Insanity, Resistance Band Training, Zumba, Jazzercise, the Shake Weight, and the list could go on and on). That's a very competitive environment where market share changes quickly. If there is one thing I've learned, a business is much less likely to providing enduring investment returns if market share in that industry changes at a rapid pace (meaning relative market shares can move dramatically over the course of a decade). I think exercise equipment probably witnesses dramatic changes in customer behavior on a more frequent pace than that.

 

 

 

 

 

The difference is Peloton is quickly becoming a cultural status item like the iPhone did. The branding/marketing difference is unreal. Those previous exercise equipment fads have a stigma of becoming nothing but clothes hangers that you hide in some backroom of your house. Peloton is something you put in a front room so every friend who comes over sees your big dick swinging Peloton "piece of art" and thinks to themselves, "damn, what am I doing wrong". Add in the best in class platform and you may have a recipe for success. As I said, no position currently. But I think there is more to consumer perception with PTON than people are giving credence.

[KJP]

 

Peloton is something you put in a front room so every friend who comes over sees your big dick swinging Peloton "piece of art" and thinks to themselves, "damn, what am I doing wrong". Add in the best in class platform and you may have a recipe for success.

 

From this perspective, is the (to me at least) high cost of Peloton a feature, rather than a bug?

[Castanza]

 

Peloton is something you put in a front room so every friend who comes over sees your big dick swinging Peloton "piece of art" and thinks to themselves, "damn, what am I doing wrong". Add in the best in class platform and you may have a recipe for success.

 

From this perspective, is the (to me at least) high cost of Peloton a feature, rather than a bug?

 

I would guess that it is a feature. You can find other exercise equipment (see sunny bike) which is very similar mechanically, yet costs about 1/3rd of the price.

[misterkrusty]

"The shorts are all cheap introverts and don't understand that most people need human reinforcement, eg a coach or a class to lose weight."

 

Now this is the sort of genius-level insight that makes CoBF so great.  People need human reinforcement?  Arghhh!  Why didn't I realize that before?  Now I see that Peloton's $2,250 bike is the only way to get human reinforcement ... unless you own a different bike and subscribe to their  TV-production-quality classes for $12 a month. 

 

When I see that big-swinging-dick piece of art in my friend's living room I just pull an American Psycho and think "I am overcome with a wave of jealousy.  Tom's exercise bike is clearly more expensive than mine..."  If only my exercise options were confined to my home ... if only I could be that glorious hamster on a wheel ... if only my quads were the only muscle group that mattered...

 

I ain't one of those losers who think current sales are a function of everyone being stuck at home.  Don't they see it's so much more than that?  Thanks to y'all, I "get it"

[Kaegi2011]

"The shorts are all cheap introverts and don't understand that most people need human reinforcement, eg a coach or a class to lose weight."

 

Now this is the sort of genius-level insight that makes CoBF so great.  People need human reinforcement?  Arghhh!  Why didn't I realize that before?  Now I see that Peloton's $2,250 bike is the only way to get human reinforcement ... unless you own a different bike and subscribe to their  TV-production-quality classes for $12 a month. 

 

When I see that big-swinging-dick piece of art in my friend's living room I just pull an American Psycho and think "I am overcome with a wave of jealousy.  Tom's exercise bike is clearly more expensive than mine..."  If only my exercise options were confined to my home ... if only I could be that glorious hamster on a wheel ... if only my quads were the only muscle group that mattered...

 

I ain't one of those losers who think current sales are a function of everyone being stuck at home.  Don't they see it's so much more than that?  Thanks to y'all, I "get it"

 

I think you're being too dismissive.  NObody saw the pandemic, but it is what it is, and in this instance I see two factors that dramatically impact their business:

 

1) CAC goes way down, because people are coming to them organically, and even with advertising the CPMs are way lower than before.  Assuming LTV has not changed, each incremental customer is that much more valuable.

 

2) I would argue that LTV is probably increasing at the moment.  When people need an outlet to exercise, and they experiment and **stick** to a routine such at the bike/app that they otherwise might not have and see the results, they might be more inclined to subscribe longer. 

 

If you believe those two facts, plus runway to profitability, you might get comfortable with the stock price.  Now I wish I had the foresight to invest, but I do believe there are good reasons for the stock to have done what it's done. 

[Broeb22]

 

Peloton is something you put in a front room so every friend who comes over sees your big dick swinging Peloton "piece of art" and thinks to themselves, "damn, what am I doing wrong". Add in the best in class platform and you may have a recipe for success.

 

From this perspective, is the (to me at least) high cost of Peloton a feature, rather than a bug?

 

What you just described is a Giffen good, a luxury item. If that is what you're arguing, then how wide can the adoption really be? How many people are in the Fuck You Money Expensive Equipment Market? What % of the available market has already tried and failed with purchasing expensive exercise equipment? Will the churn for each new customer, who I would guess is less likely to be a passionate cycler, remain at its current level or increase over time?

 

 

 

I would guess that it is a feature. You can find other exercise equipment (see sunny bike) which is very similar mechanically, yet costs about 1/3rd of the price.

[thowed]

I mostly just look on with a mix of admiration, disgust, and confusion.

 

I don't know if you've read Adam Smith's 'The Money Game' but he covered all this stuff in the mid-70s.  It's Gerry Tsai all over again.  We need some kids to understand it for us.

[misterkrusty]

Ahh yes, the "Valuesaur Museum" ... that's a sore subject for me because I was told back in 1999 that I was to be dunked in formaldehyde and featured prominently in one of the main exhibits.  And then in 2002 they call me and say sorry not gonna happen.  Bastards!

 

Oh that sweet, sweet subscription revenue.  At $12/month less production costs it might wind up being some small amount of profit.  But, if you have the "vision" to capitalize that at a visionary multiple, you might wind up exceeding the current $12 billion market cap. 

 

Just curious, were any of you guys in FBIT or GPRO?  be honest

[KJP]

Ahh yes, the "Valuesaur Museum" ... that's a sore subject for me because I was told back in 1999 that I was to be dunked in formaldehyde and featured prominently in one of the main exhibits.  And then in 2002 they call me and say sorry not gonna happen.  Bastards!

 

Oh that sweet, sweet subscription revenue.  At $12/month less production costs it might wind up being some small amount of profit.  But, if you have the "vision" to capitalize that at a visionary multiple, you might wind up exceeding the current $12 billion market cap. 

 

Just curious, were any of you guys in FBIT or GPRO?  be honest

 

I doubt they expect the $12/month subscription to be a standalone business.  There already are competing streaming workout services at similar prices, e.g., Beachbody on Demand, and, as you suggest, likely little moat in solely that type of business.  But if you already produce a bunch of content for people paying $40/month, then making some it available for $12/month would be largely high margin incremental revenue, so long as it doesn't cannibalize the $40/month product and so long as you keep your CAC under control.  It would be akin to a car dealer selling gap insurance -- you'd be unlikely to sell that standing, but you do it when you sell it at very little incremental cost to your main business.