PTON - Peloton

[wescobrk]

I was listening to a podcast last night on Shopify and he was calling it a pyramid and said he would donate to charity if it wasn't below $100 a share. The podcaster described him as adamant of how nefarious Shopify is as Ackman was so vocal in describing how evil Herbalife was.

We all know how Left did with his short on Spotify. Another company he was off by 10x.

Somehow the guy is successful so I'll give him credit for his marketing prowess.

[misterkrusty]

but you're focusing on some of his worst performing calls in the most difficult time to be short story-stocks since the dot-com bubble.  Not exactly a fair way to appraise someone's track record. 

 

Also, there are very few shortsellers that don't have rules about covering positions when they go against them.  Even if you don't have rules, your broker gives you a margin call.  In other words, he probably covered long ago.  Personally, I only buy puts to avoid this risk.

 

Does the price action in SHOP prove that Left's criticisms were wrong?  It does not.  From the VIC:

This guy (https://absurdresearch.com/) went to the trouble of tracking Shopify domains to show that 85% of their customers are likely churning after their domain name registration expires in a year. This foots with what I've heard about the median revenue of a Shopify store being zero and 70%+ of Shopify stores being non-viable. He thought the stock was worth $60 and instead it is $760.

 

 

 

 

[wescobrk]

You can make an argument that the price action doesn't make him wrong but he said the stock would be below $100 for Shopify and he also said Peloton would be single digits this year.

I would agree with you if he said (within 5 years) but he didn't,he make specific market calls and he was wrong by a factor of 10 for peloton and the same for Shopify.

[Gregmal]

Urgency is always integral to a great sales pitch. If you are trading your own commotion, it is important to be as sensational as possible.

[misterkrusty]

Like I said, it's really unlikely that he's still short.  Probably covered long ago, or structured a bearish bet thru options

 

You guys are judging him based on his worst calls and ignoring the best.  SHOP and so many other stocks are in a bubble right now.  Take it from someone who was saying the same sort of thing in 1999.

[Gregmal]

You are perhaps mistaking my comments as a general disdain for Left/Citron. Quite the contrary. I follow him closely and admire some of his style. He is a unique investor.

[fareastwarriors]

 

Peloton crushes estimates as sales surge 172%, expects strong demand to continue into 2021

 

https://www.cnbc.com/2020/09/10/peloton-pton-reports-fiscal-.html

 

Peloton’s fiscal fourth-quarter sales surged 172%.

 

With such strong demand for its bike and treadmill, it said it doesn’t expect to return to “normalized order-to-delivery windows” in the U.S. before the end of the fiscal second quarter.

 

Peloton’s outlooks for first-quarter and fiscal 2021 sales also far exceed analysts’ expectations.

[Dalal.Holdings]

:)

[deadspace]

but you're focusing on some of his worst performing calls in the most difficult time to be short story-stocks since the dot-com bubble.  Not exactly a fair way to appraise someone's track record. 

 

Also, there are very few shortsellers that don't have rules about covering positions when they go against them.  Even if you don't have rules, your broker gives you a margin call.  In other words, he probably covered long ago.  Personally, I only buy puts to avoid this risk.

 

Does the price action in SHOP prove that Left's criticisms were wrong?  It does not.  From the VIC:

This guy (https://absurdresearch.com/) went to the trouble of tracking Shopify domains to show that 85% of their customers are likely churning after their domain name registration expires in a year. This foots with what I've heard about the median revenue of a Shopify store being zero and 70%+ of Shopify stores being non-viable. He thought the stock was worth $60 and instead it is $760.

 

 

Churn with Shopify is irrelevant    It’s a feature not a bug.  It allows businesses to fail in the process of discovering those which will succeed

 

Follow GMV    That’s all you need to follow

[Broeb22]

I guess I’m the only one who still thinks this is a fad product...

 

The churn number is almost crazy low. Does it make sense for them to calculate net churn as opposed to gross churn? Net churn is kind of analogous to the DBNER Saas companies use so I guess it’s ok. It’s just not comparable to the gross churn numbers that other companies site (I’m thinking of SIRI but there’s likely others).

 

I guess I don’t have that much faith in humanity as a whole to really stick to exercising 4+ times per week, even if it’s a good deal compared to Soulcycle or whatever.

 

Also, if churn is as low as they say it is, why is Peloton starting to sell used bikes? I’m sure there is a good business reason for doing this, but there are very active and thriving used good sites (eBay, Craigslist, etc.) for people to offload these bikes. Why is Peloton going to buy these bikes back? At best, they will keep the price for their new bikes elevated by controlling supply of used bikes and at worst, they are essentially buying back obsolete inventory to keep sales of their new products going, which could turn into a balance sheet problem at some point (admittedly distant given the $1 billion in cash they have).

 

https://finance.yahoo.com/news/peloton-will-start-selling-used-bikes-soon-215849632.html

 

 

But what do I know? Trees do grow to the sky and there are tons of examples of exercise equipment/classes that have had staying power.

 

There’s a lot of terminal value built into the current price, and there’s a good argument that the market is valuing this company at a peak multiple of peak (at least a cyclical if not secular peak) revenues.

[Gregmal]

I guess I’m the only one who still thinks this is a fad product...

 

The churn number is almost crazy low. Does it make sense for them to calculate net churn as opposed to gross churn? Net churn is kind of analogous to the DBNER Saas companies use so I guess it’s ok. It’s just not comparable to the gross churn numbers that other companies site (I’m thinking of SIRI but there’s likely others).

 

I guess I don’t have that much faith in humanity as a whole to really stick to exercising 4+ times per week, even if it’s a good deal compared to Soulcycle or whatever.

 

Also, if churn is as low as they say it is, why is Peloton starting to sell used bikes? I’m sure there is a good business reason for doing this, but there are very active and thriving used good sites (eBay, Craigslist, etc.) for people to offload these bikes. Why is Peloton going to buy these bikes back? At best, they will keep the price for their new bikes elevated by controlling supply of used bikes and at worst, they are essentially buying back obsolete inventory to keep sales of their new products going, which could turn into a balance sheet problem at some point (admittedly distant given the $1 billion in cash they have).

 

https://finance.yahoo.com/news/peloton-will-start-selling-used-bikes-soon-215849632.html

 

 

But what do I know? Trees do grow to the sky and there are tons of examples of exercise equipment/classes that have had staying power.

 

There’s a lot of terminal value built into the current price, and there’s a good argument that the market is valuing this company at a peak multiple of peak (at least a cyclical if not secular peak) revenues.

 

Not alone at all. I think we are close to seeing peak revenues, likely within the next 12 months. Its definitely a fad product. There is a passionate base but the COVID trade you've seen here just pulled ahead future sales. No different than what occurred with applicable discretionary spend items in other places such as boats and RVs. You have an extraordinary one off situation where people are more or less imprisoned in their homes and even once let out, stuck in their states/regions. Gyms are closed, cities shut down. Constant focus on "health". There isn't anything more you could dream up to pump something like this, but let it play out first. A short without a catalyst usually just ends up being a tax write off. Unless you believe the future holds a place for a $30B exercise bike company that streams Youtube videos...

[Broeb22]

This is just one of many old economy piggies wearing Saas lipstick

 

But it doesn’t include the out right frauds or the merely overvalued Saas companies that offer a product and not a platform whose best hope is to be bought out by one of the platforms before people wake up to the reality that their TAMs aren’t that huge.

 

Since you brought up Peloton’s videos, how about ZM’s $100 billion videoconferencing business? Is that a product or a platform? Where do they go from here to become stickier inside enterprises? How hard was/is it for most people to switch to Microsoft Teams at no additional cost to existing MSFT suite? I’ll tell you the sleepy company I worked for dropped a ZM competitor like a bad habit when Teams was introduced. Idk that people are giving MSFT any additional credit for rolling out Teams but yeah ZM is definitely here to stay and it’s long term dominance is unquestioned. I almost yearn for the days when MSFT could buy Skype for a modest $9 billion. Based on ZM, MSFT should have a 10 bagger in less than 10 years.

 

Maybe they should spin off their Teams business because it will create value? Oh wait, it won’t because no one wants to have 1,000 point solutions to run their IT dept or business.

[Jurgis]

This is just one of many old economy piggies wearing Saas lipstick

 

But it doesn’t include the out right frauds or the merely overvalued Saas companies that offer a product and not a platform whose best hope is to be bought out by one of the platforms before people wake up to the reality that their TAMs aren’t that huge.

 

Since you brought up Peloton’s videos, how about ZM’s $100 billion videoconferencing business? Is that a product or a platform? Where do they go from here to become stickier inside enterprises? How hard was/is it for most people to switch to Microsoft Teams at no additional cost to existing MSFT suite? I’ll tell you the sleepy company I worked for dropped a ZM competitor like a bad habit when Teams was introduced. Idk that people are giving MSFT any additional credit for rolling out Teams but yeah ZM is definitely here to stay and it’s long term dominance is unquestioned. I almost yearn for the days when MSFT could buy Skype for a modest $9 billion. Based on ZM, MSFT should have a 10 bagger in less than 10 years.

 

Maybe they should spin off their Teams business because it will create value? Oh wait, it won’t because no one wants to have 1,000 point solutions to run their IT dept or business.

 

I agree with you regarding PTON.

 

I also agree that Zoom will have tough time going forward. However, you are wrong that enterprises can just use MS Teams. MS Teams is great for small meetings. MS Teams does not handle large meetings. I believe 250 is max number on Teams and even close to that is dicey. Everything above that requires Zoom or Webex. Microsoft may implement large meeting handling though. And market for large meetings is not that big.

There are other markets where MS Teams don't work (well): across companies or just private meetings. But these are also likely not huge markets.

[LounginMKL]

Allow me to be a devil's advocate. I recently bought a used Peloton right before the announcement of price drop (just my luck...) and here are a couple of observations.

 

- There are real social aspects of "the platform." Check out how many tribes (social groups) are there https://www.pelobuddy.com/pelothon-2020/

- The instructors are better than the ones I've experienced at our local spin class (I haven't tried SoulCycle/Flywheel)

- Its competitors, Nordictrack/Bowflex, are far behind on the software and the quality of classes

- Suburb housewives are getting into it in droves. Just browse the Peloton FB groups and you will see profiles likes of MerlotSpinner and PinoMama. Remember the BECKY portfolio and how there are many compounders in there? The suburb housewives with their tremendous purchasing power shouldn't be ignored (apologize in advance about the gross generalization)

 

Saying Peloton is just another home fitness equipment is like saying

AAPL is just another smartphone maker

TSLA is just another EV

LULU just makes commodity yoga pants

SBUX just sells burnt coffee

CMG competes with every other taco trucks

 

I see us repeating the same mistakes over and over again (me included, I've watched but not invested in any of the aforementioned names, except for AAPL). I see value investor's failure to appreciate lifestyle brands as a blind spot because we are frugal and value-conscious. You may not be the target market but that doesn't mean this is a fad.

 

As you can see, I'm trying adapt to the new thinking =)

[Dalal.Holdings]

Allow me to be a devil's advocate. I recently bought a used Peloton right before the announcement of price drop (just my luck...) and here are a couple of observations.

 

- There are real social aspects of "the platform." Check out how many tribes (social groups) are there https://www.pelobuddy.com/pelothon-2020/

- The instructors are better than the ones I've experienced at our local spin class (I haven't tried SoulCycle/Flywheel)

- Its competitors, Nordictrack/Bowflex, are far behind on the software and the quality of classes

- Suburb housewives are getting into it in droves. Just browse the Peloton FB groups and you will see profiles likes of MerlotSpinner and PinoMama. Remember the BECKY portfolio and how there are many compounders in there? The suburb housewives with their tremendous purchasing power shouldn't be ignored (apologize in advance about the gross generalization)

 

Saying Peloton is just another home fitness equipment is like saying

AAPL is just another smartphone maker

TSLA is just another EV

LULU just makes commodity yoga pants

SBUX just sells burnt coffee

CMG competes with every other taco trucks

 

I see us repeating the same mistakes over and over again (me included, I've watched but not invested in any of the aforementioned names, except for AAPL). I see value investor's failure to appreciate lifestyle brands as a blind spot because we are frugal and value-conscious. You may not be the target market but that doesn't mean this is a fad.

 

As you can see, I'm trying adapt to the new thinking =)

 

Pretty much.

[Broeb22]

We’re all making probabilistic bets here, and honestly I’m not even making a bet on PTON, just trying to reconcile my own investment intuitions with what the market is saying.

 

I guess you have to wonder where does PTON make money, now and long-term?

 

For now, they are making a lot of money selling bikes and treadmills, similar to how Apple did early on. Long-term, they will slow to a steady state of bike sales (I would argue that steady state is likely a lot lower than the recent quarter) unless you are arguing people will jump at the chance to replace their bike every 2 years. Again, I don’t think people will be replacing $1,000-2,000 bikes every 2 years, and directionally I would say if even Apple had to make their batteries lose life just to sustain their replacement cycle then this is a safe assumption. A smartphone has a whole lot more technology changing than these bikes likely can or will.

 

So then you get to the software business. This is a $480 million run rate business based on their best quarter ever. If you think people don’t reload on the hardware very often, as I do, then depending on how you value ongoing hardware revenue you are valuing the Saas portion of this business at maybe 30-40x sales.

 

Most actual Saas companies only trade at 15-20x sales and you can argue about whether Saas as a whole should trade at those multiples. And subjectively but also let’s be honest kind of objectively PTON is a less sticky product (6% annual churn or higher) Long-term than most Saas enterprise softwares so it really doesn’t deserve to be valued at that same level.

 

Finally, what’s the ultimate long term value here? $100 billion? How do you get to that?

 

If someone can logically lay that out for me, you have a very risk 4-bagger in about 10-15 years, or a 15% IRR.

 

Using the comparisons you made, the SBUX, CMG, and LULU are probably most similar to PTON  in that they operate in fiercely competitive markets and somehow still make it work. These companies have been competing for decades, the newest LULU was founded in 1998. CMG and LULU trade for pretty high valuations themselves, north of 60x earnings, and the market is valuing their entire businesses at only slight premiums to PTON.

 

Maybe I’m the Luddite here who has it all wrong but there are so many higher quality, long-term defensible businesses out there at better valuations, why even mess with this?

 

 

 

 

[Gregmal]

Allow me to be a devil's advocate. I recently bought a used Peloton right before the announcement of price drop (just my luck...) and here are a couple of observations.

 

- There are real social aspects of "the platform." Check out how many tribes (social groups) are there https://www.pelobuddy.com/pelothon-2020/

- The instructors are better than the ones I've experienced at our local spin class (I haven't tried SoulCycle/Flywheel)

- Its competitors, Nordictrack/Bowflex, are far behind on the software and the quality of classes

- Suburb housewives are getting into it in droves. Just browse the Peloton FB groups and you will see profiles likes of MerlotSpinner and PinoMama. Remember the BECKY portfolio and how there are many compounders in there? The suburb housewives with their tremendous purchasing power shouldn't be ignored (apologize in advance about the gross generalization)

 

Saying Peloton is just another home fitness equipment is like saying

AAPL is just another smartphone maker

TSLA is just another EV

LULU just makes commodity yoga pants

SBUX just sells burnt coffee

CMG competes with every other taco trucks

 

I see us repeating the same mistakes over and over again (me included, I've watched but not invested in any of the aforementioned names, except for AAPL). I see value investor's failure to appreciate lifestyle brands as a blind spot because we are frugal and value-conscious. You may not be the target market but that doesn't mean this is a fad.

 

As you can see, I'm trying adapt to the new thinking =)

 

I think this is reasonable. I dont disagree its a great, status type product/service combo. The problem with the above comps is that CMG can pick your pocket everyday. So can SBUX. LULU can sell you a wardrobe every year or two. AAPL has the device every two years, and the stuff inside the device.TSLA is a bit more complicated, but I can at least point to some add on's, not to mention highly valuable data they can collect from users. What element does PTON possess? They sell a clunky piece of hardware, likely once to somebody. I dont know how many cycles you can get out of replacing a stationary bike. So then whats left is the platform. You can make assumptions about TAM, but it's upper/middle class city folks it seems. Probably some suburb mix too. You are talking households, not people because everyone has access with the subscription. So I think the number is ultimately smaller that what people think and even being generous, this current valuation is a little nuts. A better comp I think is probably Sodastream, which ended up being both a fad, and a decent investment. Sell the hardware and then collect $20 per month on CO2 from the users. Except the public lifecycle for that, was a U. The fad valuation eventually collapsed and the business had to reconcile it's bottom line with the price people would pay for its shares. What's going on now in the markets is very different in that almost every company in certain spaces is being given instant credit for becoming the "idea" of what they aspire to be 5-10 years from now. Its a crazy, but ultimately very fun market. So of course, the best advice is to not get upset over valuations, and just have some fun with it; cautiously of course. But I dont think the new normal is 20x sales for everybody and at some point the chickens come home to roost.

[A Dhandho Investor]

I agree with Broeb22 and Gregmal on this one.

 

@LounginMKL: the issue I see with your way of thinking / the below post is that basically you are just ignoring valuation.

 

Maybe it is a great company, but why would you invest in it at this price level?

 

Allow me to be a devil's advocate. I recently bought a used Peloton right before the announcement of price drop (just my luck...) and here are a couple of observations.

 

- There are real social aspects of "the platform." Check out how many tribes (social groups) are there https://www.pelobuddy.com/pelothon-2020/

- The instructors are better than the ones I've experienced at our local spin class (I haven't tried SoulCycle/Flywheel)

- Its competitors, Nordictrack/Bowflex, are far behind on the software and the quality of classes

- Suburb housewives are getting into it in droves. Just browse the Peloton FB groups and you will see profiles likes of MerlotSpinner and PinoMama. Remember the BECKY portfolio and how there are many compounders in there? The suburb housewives with their tremendous purchasing power shouldn't be ignored (apologize in advance about the gross generalization)

 

Saying Peloton is just another home fitness equipment is like saying

AAPL is just another smartphone maker

TSLA is just another EV

LULU just makes commodity yoga pants

SBUX just sells burnt coffee

CMG competes with every other taco trucks

 

I see us repeating the same mistakes over and over again (me included, I've watched but not invested in any of the aforementioned names, except for AAPL). I see value investor's failure to appreciate lifestyle brands as a blind spot because we are frugal and value-conscious. You may not be the target market but that doesn't mean this is a fad.

 

As you can see, I'm trying adapt to the new thinking =)

[Dalal.Holdings]

I’ll go ahead and make a “laughable” analogy—like the one I made a couple of years back comparing old AAPL to TSLA (Worked out well for me):

 

PTON is more akin to NFLX albeit with a smaller TAM but in this case folks are willing to buy equipment worth thousands of dollars from them for the privilege of streaming their content.

 

The moat is much wider than Zoom. The best consumer products seem like fads in their early stages.

 

I’m sure I’ll be mocked for this, but oh well.

[Castanza]

You can like the product and hate the investment. It's difficult to have any margin of safety when the foundation of a thesis is "consumers like this and I hope they continue to like it."

[thepupil]

I’ll go ahead and make a “laughable” analogy—like the one I made a couple of years back comparing old AAPL to TSLA (Worked out well for me):

 

PTON is more akin to NFLX albeit with a smaller TAM but in this case folks are willing to buy equipment worth thousands of dollars from them for the privilege of streaming their content.

 

The moat is much wider than Zoom. The best consumer products seem like fads in their early stages.

 

I’m sure I’ll be mocked for this, but oh well.

 

i agree with this.

 

i don't own PTON, don't think it's worth $30B, but think there is a serious moat being built here and significant scale / network advantage to PTON versus its competition (only wrt indoor cycling) that could potentially be expanded to broader fitness. think that over time they could pick off other emerging players and eventually offer a bundled "fitness at home suite" that's a huge value proposition. think there's long term international potential that's pretty wide open.

 

we are a soulcycle at home / variis household, but we are the outlier. each of our neighbors has a peloton, 1/2 of my fraternity brothers have pelotons; several of their parents have 2. strength is begetting stength. more classes. more funding, more users, bigger budget for top trainers / adjacencies etc.

 

if you asked me is PTON worth $30B? I'd take the under. but unlike a  lot of things, i actually can understand the potential power of this growth story.

 

I think it's easy to underestimate how many people are happy to spend $40 / month for this. $480 / year of super high margin revenue on 1mm, 2mm, 3mm people, funds a lot of optionality. i also think it's easy to underestimate how many people will by a $2,500 bike that you think can't or shouldn't. 0% financing is the american way and that's one huge blunder on Variis / soulcycles part (only cash).

 

I'm aware of at least 2 decent fundamental l/s funds that have been inclined to short this, then dug in, and gone long.

 

[arcube]

I’ll go ahead and make a “laughable” analogy—like the one I made a couple of years back comparing old AAPL to TSLA (Worked out well for me):

 

PTON is more akin to NFLX albeit with a smaller TAM but in this case folks are willing to buy equipment worth thousands of dollars from them for the privilege of streaming their content.

 

The moat is much wider than Zoom. The best consumer products seem like fads in their early stages.

 

I’m sure I’ll be mocked for this, but oh well.

 

i agree with this.

 

i don't own PTON, don't think it's worth $30B, but think there is a serious moat being built here and significant scale / network advantage to PTON versus its competition (only wrt indoor cycling) that could potentially be expanded to broader fitness. think that over time they could pick off other emerging players and eventually offer a bundled "fitness at home suite" that's a huge value proposition. think there's long term international potential that's pretty wide open.

 

we are a soulcycle at home / variis household, but we are the outlier. each of our neighbors has a peloton, 1/2 of my fraternity brothers have pelotons; several of their parents have 2. strength is begetting stength. more classes. more funding, more users, bigger budget for top trainers / adjacencies etc.

 

if you asked me is PTON worth $30B? I'd take the under. but unlike a  lot of things, i actually can understand the potential power of this growth story.

 

I think it's easy to underestimate how many people are happy to spend $40 / month for this. $480 / year of super high margin revenue on 1mm, 2mm, 3mm people, funds a lot of optionality. i also think it's easy to underestimate how many people will by a $2,500 bike that you think can't or shouldn't. 0% financing is the american way and that's one huge blunder on Variis / soulcycles part (only cash).

 

I'm aware of at least 2 decent fundamental l/s funds that have been inclined to short this, then dug in, and gone long.

 

+1.

[thepupil]

i think where i really failed is that I failed to see that if a dumb value oriented guy like me can understand the thesis, then surely this market would be excited by and "understand" the thesis by a factor of 2-3x and therefore the stock was retrospectively cheap. perhaps thats still the case

[KJP]

 

i don't own PTON, don't think it's worth $30B, but think there is a serious moat being built here and significant scale / network advantage to PTON versus its competition (only wrt indoor cycling) that could potentially be expanded to broader fitness. think that over time they could pick off other emerging players and eventually offer a bundled "fitness at home suite" that's a huge value proposition. think there's long term international potential that's pretty wide open.

 

...

 

I think it's easy to underestimate how many people are happy to spend $40 / month for this. $480 / year of super high margin revenue on 1mm, 2mm, 3mm people, funds a lot of optionality. i also think it's easy to underestimate how many people will by a $2,500 bike that you think can't or shouldn't. 0% financing is the american way and that's one huge blunder on Variis / soulcycles part (only cash).

 

 

$40/month is cheap compared to, for example, CrossFit, which some people seem to stick with for several years because of the community aspect.  That level of community cannot be fully replicated online, but the more Peloton can generate a community feeling the better.  I agree it's also essential to expand the offering beyond cycling, because I think many people get bored and want to change up their routine.  Although some people will keep at it, I think many people won't cycle for 5 - 10 years straight.  So I think they're going to have a churn problem unless they can have a full fitness offering, and even then churn may be an issue for the reasons stated above.

[A Dhandho Investor]

i think where i really failed is that I failed to see that if a dumb value oriented guy like me can understand the thesis, then surely this market would be excited by and "understand" the thesis by a factor of 2-3x and therefore the stock was retrospectively cheap. perhaps thats still the case

 

In my humble opinion you don't fail if you stick to your personal investment approach.

 

Why would you enter into a Keynesian beauty contest where you buy a stock because you think other people will like it more once they "understand the investment thesis"?

 

I saw a Twitter post by a "value investor" stating "the day SpaceX IPO's I will definitely buy the stock because there will be a ton of fans that is also eagerly waiting to buy the stock".

 

Buying in a stock because you like the underlying business without looking at the valuation is just speculation based on (1) the greater fool theory or (2) hope that the investment thesis will work out eventually and the company will grow into its current valuation. imo you can throw > 90% of the SAAS space in the second bucket.