PTON - Peloton

[deleuze68]

Echoing some of the prior comments, I'm not a buyer at this valuation but I wouldn't short it either. The brand has a captive audience, is accumulating cash, and can borrow for dirt cheap. In many ways this will be a bet on management - can the company leverage its brand power (peloton as lifestyle) to profitably expand its offering and reach. The bull case is in 10 years people will be saying, "remember when Peloton was just an exercise bike?"

[Gregmal]

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.

 

To be fair, playing "pass the hot potato" has now worked wonders for nearly a decade, and fully gone into overdrive TTM. If all the RobinHoods can do it, surely a reasonably well versed financial professional/sophisticated investor can find a way to make a few beans off the same strategy... End of the day, everyones just trying to make money. The question of strategy really just comes down to sustainability. Its been kind of easy to see certain things have long runways for the "story". You've got an awesome story, reasonably large TAM, and no real chicken come home to roost/show me the profits expectation for the time being...the animal spirits will run wild=bad short. NVTA is another one that fits this bill.

[Jurgis]

We thought of buying Mirror ( https://www.mirror.co/ ), but the functionality is actually much more basic than advertised. If anyone thinks this is going to be big, buy LULU and get Mirror for free.  ::)

 

 

 

Not buying PTON products, don't like indoor biking or running. If they start offering steppers/ellipticals, then maybe. Though likely not at their price point.

[BG2008]

Why would a bunch of "cheap ass" value investing nerds on an outdated investing forum understand the appeal of Peloton.  The users are largely busy housewives with 2-3 kids who can't go to the gym and they hop on the bike for 20 mins and then shower and their 3 workouts in for the week.  It's a way for them to stay sane and somewhat in shape.  If you don't understand the value proposition in something like that, then you guys are idiots. 

 

Value nerds by definition are not good with retail or why certain seemingly higher price point products/services appeal to women such as LuluLemon.  I've bought a few pairs.  They are great shorts.  I wear them all the time.

[arcube]

The users are largely busy housewives with 2-3 kids who can't go to the gym and they hop on the bike for 20 mins and then shower and their 3 workouts in for the week.  It's a way for them to stay sane and somewhat in shape.  If you don't understand the value proposition in something like that, then you guys are idiots. 

 

Nailed it. : )

[Jurgis]

Just for the tally: how many of the PTON expert bulls bought the stock (early) this year and held/continue to hold?

Edit: or have you bought it now that the bull thesis is even more confirmed?

 

"Cheap ass" value investing nerd who does not wear shorts  ::) wants to know.

[A Dhandho Investor]

Why would a bunch of "cheap ass" value investing nerds on an outdated investing forum understand the appeal of Peloton.  The users are largely busy housewives with 2-3 kids who can't go to the gym and they hop on the bike for 20 mins and then shower and their 3 workouts in for the week.  It's a way for them to stay sane and somewhat in shape.  If you don't understand the value proposition in something like that, then you guys are idiots. 

 

Value nerds by definition are not good with retail or why certain seemingly higher price point products/services appeal to women such as LuluLemon.  I've bought a few pairs.  They are great shorts.  I wear them all the time.

 

I invested in Xpel, which basically (it's more than that, but let's keep it simple) is in the business of selling $4k car wraps to retail buyers. I wouldn't immediately buy their product myself, but why do you believe a value investor wouldn't understand the economics of a business like that? The thing is, when I initially built my position, it was basically trading at 1 x revenues (now > 5 x revenues).

 

I would say that the part where value investing comes into play is the link between the unit economics / business economics / value proposition and the actual market valuation of the company. Coincidently, you don't make that link in your post.

[Foreign Tuffett]

Why would a bunch of "cheap ass" value investing nerds on an outdated investing forum understand the appeal of Peloton.  The users are largely busy housewives with 2-3 kids who can't go to the gym and they hop on the bike for 20 mins and then shower and their 3 workouts in for the week.  It's a way for them to stay sane and somewhat in shape.  If you don't understand the value proposition in something like that, then you guys are idiots. 

 

Value nerds by definition are not good with retail or why certain seemingly higher price point products/services appeal to women such as LuluLemon.  I've bought a few pairs.  They are great shorts.  I wear them all the time.

 

I think the posters here largely grok Peloton's appeal to the general public, even if (like me) they have zero personal interest in the product.

 

I think the skepticism is because the entire history of the consumer exercise equipment industry is the history of one fad after another.  If Peloton bikes are still relevant in 10 or 20 years the company will have really beaten the odds.

 

https://www.usatoday.com/story/life/people/2018/07/12/biggest-fitness-fad-year-you-were-born/780962002/

 

It wasn't that long ago that seemingly every suburban American house had a Bowflex home gym machine in the garage. How about the glorious device that was the Gazelle Freestyle? Anybody still watching their Jane Fonda VHS tapes? How about Billy Blanks' Taebo or P90X? Chest Expander? Geez, even the definitive biography of Buffett, our patron saint, contains an account of his brief infatuation with Bob Hoffman and York Barbell.

[Read the Footnotes]

I have a friend who is a very serious triathlete, who very sheepishly admitted to having bought a Peloton and really liking it. He is not at all part of what is assumed to be their target market.

 

If they have a chance to be successful with serious male athletes and cyclists, that would expand their market substantially and mean that the runway is nowhere near exhausted.

[Jurgis]

How about the glorious device that was the Gazelle Freestyle?

 

I have to sheepishly admit that we bought Gazelle in 2018. Wife uses it once in a blue moon. I get seasickness on it after 1 minute.  ::)

[arcube]

It wasn't that long ago that seemingly every suburban American house had a Bowflex home gym machine in the garage. How about the glorious device that was the Gazelle Freestyle? Anybody still watching their Jane Fonda VHS tapes? How about Billy Blanks' Taebo or P90X? Chest Expander? Geez, even the definitive biography of Buffett, our patron saint, contains an account of his brief infatuation with Bob Hoffman and York Barbell.

 

IMO - Not a valid comparison with a live and connected device with huge community aspects. I went long earlier this year and the only regret I have is that I did not back the truck on this one.

[Broeb22]

I have a friend who is a very serious triathlete, who very sheepishly admitted to having bought a Peloton and really liking it. He is not at all part of what is assumed to be their target market.

 

If they have a chance to be successful with serious male athletes and cyclists, that would expand their market substantially and mean that the runway is nowhere near exhausted.

 

Why would you think that a triathlete would not be part of the target market? I feel like any adult that is reasonably wealthy and bikes at least once a week is the target market.

[Jurgis]

IMO - Not a valid comparison with a live and connected device with huge community aspects. I went long earlier this year and the only regret I have is that I did not back the truck on this one.

 

OK, at least one bull responded with actual "I'm long". /respect

 

The community aspect is a two edged sword. It's great and positively reinforcing if/when it is growing. But community can collapse too if people move on to something different. With that being said, I'm not expecting PTON sales/subs to collapse for ~2 years at least. There is still lockdown and scarcity factor. So we have until ~2021 end for increasing sales/participation. If it goes down (in sales/subs), it will go down in 2022-2023 timeframe. JMO. (Note that I don't predict how/where stock price will go)

[arcube]

IMO - Not a valid comparison with a live and connected device with huge community aspects. I went long earlier this year and the only regret I have is that I did not back the truck on this one.

 

OK, at least one bull responded with actual "I'm long". /respect

 

The community aspect is a two edged sword. It's great and positively reinforcing if/when it is growing. But community can collapse too if people move on to something different. With that being said, I'm not expecting PTON sales/subs to collapse for ~2 years at least. There is still lockdown and scarcity factor. So we have until ~2021 end for increasing sales/participation. If it goes down (in sales/subs), it will go down in 2022-2023 timeframe. JMO. (Note that I don't predict how/where stock price will go)

 

Fair enough. I do believe this is a big platform in making that will have some stickiness with the existing consumer base. The management team here is solid too. I also think if Tim Cook had to do a marquee acquisition, this would be it but that guy has been sitting on his ass for a long time.

[Dalal.Holdings]

I’ve been long since the mid 30s. Wasn’t too long ago. Won’t bother annualizing the gains.

 

Turns out you can do just fine holding some highly asymmetric plays like this and a chunk of cash as well. Call it a “barbell” if you must.

 

I don’t see any viable competitors on their tail. Mirror seems like an expensive toy. NordicTrack is like GM taking a swing at EVs...with the same expected result. Peloton has a strong motivational setup where it increases the probability that the user will come back for more exercise...invaluable in this space and something very hard to achieve. Usually you need cults like crossfit or something similar to achieve it. PTON seems to have found another way—almost turning it into a competitive video game.

 

The best part? They’ve started by aiming at the ultra high end/expensive part of the exercise space—spin classes.

[Gregmal]

IMO - Not a valid comparison with a live and connected device with huge community aspects. I went long earlier this year and the only regret I have is that I did not back the truck on this one.

 

OK, at least one bull responded with actual "I'm long". /respect

 

The community aspect is a two edged sword. It's great and positively reinforcing if/when it is growing. But community can collapse too if people move on to something different. With that being said, I'm not expecting PTON sales/subs to collapse for ~2 years at least. There is still lockdown and scarcity factor. So we have until ~2021 end for increasing sales/participation. If it goes down (in sales/subs), it will go down in 2022-2023 timeframe. JMO. (Note that I don't predict how/where stock price will go)

 

Fair enough. I do believe this is a big platform in making that will have some stickiness with the existing consumer base. The management team here is solid too. I also think if Tim Cook had to do a marquee acquisition, this would be it but that guy has been sitting on his ass for a long time.

 

I dont know about you, but I think many shareholders, would be quite happy if the majority of CEOs just boringly sat on their ass and returned capital to shareholders the way Cook has, rather than go on acquisition driven, kingdom building sprees. Based on the results, its hard to say Cook's approach hasn't worked either.

[deleuze68]

I have a friend who is a very serious triathlete, who very sheepishly admitted to having bought a Peloton and really liking it. He is not at all part of what is assumed to be their target market.

 

If they have a chance to be successful with serious male athletes and cyclists, that would expand their market substantially and mean that the runway is nowhere near exhausted.

 

Why would you think that a triathlete would not be part of the target market? I feel like any adult that is reasonably wealthy and bikes at least once a week is the target market.

 

Well a serious cyclist/triathlete already has their $5K+ bike custom fitted and a trainer in their basement/garage. If they need any motivation for their workout they'll use Zwift. Peloton will never capture this market but they can capture the bucket list or maybe hobbyist triathlete.

[Castanza]

I think some overplay the "community" aspects. How much of a community is it actually? You can't hit on guys and girls, you don't meet other people. You hide behind a forum and some performance numbers. Maybe every 10 rides you will have the instructor yell out on live stream "pick up the pace OneBallLance42069!". I don't really see the value in that. The best thing Peloton does is build aesthetically attractive bikes that have solid software for performance tracking. Right now a Peloton is a status symbol like all exercise equipment that has come before it. How long the fad can last I don't know. I now have three friends who have purchased Pelotons. Upon hanging out with each of them I was greeted with the phrase "come check out my Peloton." Couldn't help but sense the buyers remorse and clout fishing.

 

Personally I think something like https://www.whoop.com/ is more likely take off long term. It's not confined to any one activity and still introduces the community aspects of competition.

 

Until a piece of exercise equipment mimics the Disney Animal Kingdom ride experience "Flight of Passage", I will continue to be on the fad train. Even then I would be skeptical long term.

[Gregmal]

Everything always seems the most legitimate/obvious during the peak of the craze.....It is sometimes important not to let price action(often determined by patsies) allow one to convince oneself that the fundamentals and thesis is confirmed. As mentioned prior, ZM....The headlines around Zoom's earnings were outrageous. What exactly did folks expect given what occurred in Q2? Bad numbers? Same sort of thing applies here. Shut gyms. Lock people in their homes. Start imposing regional bans. Shut everything else there is to do as well. And we are shocked sales went gangbusters? This Q, as well as the next one or two Qs will IMO be hard to ever replicate and the window to really capture and monetize a user base will be now. If you triple the active users, and assume at maturity they can improve margins significantly, whats that number and the multiple for that? GoPro not too long at, again at the height of the insanity, was a "lifestyle", "status", "media/interactive" company too....

[jondoug]

I think the comparison with NFLX is more apt for Peloton. At $12.99, the digital membership gives you top notch streaming classes (on demand and live) that you could get a quick workout whenever you need at the convenience of your home. Yes, there are YouTube videos and other free options, but the consistency, variety and the quality you get from Peloton is worth the $12.99 for a lot of folks.

 

I believe the digital membership numbers will grow consistently. And, it is a great way to acquire customers for the hardware side of the business.

 

Also, Peloton has already shown it can scale easily from Biking to running to HIIT to yoga classes. It will be easy for them to keep adding whatever is the next fad in fitness classes.

 

I definitely wouldn't short it.

 

[Foreign Tuffett]

Everything always seems the most legitimate/obvious during the peak of the craze.....It is sometimes important not to let price action(often determined by patsies) allow one to convince oneself that the fundamentals and thesis is confirmed. As mentioned prior, ZM....The headlines around Zoom's earnings were outrageous. What exactly did folks expect given what occurred in Q2? Bad numbers? Same sort of thing applies here. Shut gyms. Lock people in their homes. Start imposing regional bans. Shut everything else there is to do as well. And we are shocked sales went gangbusters? This Q, as well as the next one or two Qs will IMO be hard to ever replicate and the window to really capture and monetize a user base will be now. If you triple the active users, and assume at maturity they can improve margins significantly, whats that number and the multiple for that? GoPro not too long at, again at the height of the insanity, was a "lifestyle", "status", "media/interactive" company too....

 

Yeah, everyone should be careful to not just mindlessly extrapolate COVID-fueled trends forward.

 

 

[Jurgis]

And you can get it over 4% cheaper than before earnings...  ;D

[Foreign Tuffett]

I think the comparison with NFLX is more apt for Peloton. At $12.99, the digital membership gives you top notch streaming classes (on demand and live) that you could get a quick workout whenever you need at the convenience of your home. Yes, there are YouTube videos and other free options, but the consistency, variety and the quality you get from Peloton is worth the $12.99 for a lot of folks.

 

I believe the digital membership numbers will grow consistently. And, it is a great way to acquire customers for the hardware side of the business.

 

Also, Peloton has already shown it can scale easily from Biking to running to HIIT to yoga classes. It will be easy for them to keep adding whatever is the next fad in fitness classes.

 

I definitely wouldn't short it.

 

How is the Netflix comp "apt"? Netflix's universal appeal for consumers is obvious as nearly everyone in developed countries consumes scripted video content throughout their life, but Peloton's subscription service revolves around the hardware/exercise offering. Presumably customers will cancel their subs after they stop using the bike. 

 

 

[Jurgis]

I think the comparison with NFLX is more apt for Peloton. At $12.99, the digital membership gives you top notch streaming classes (on demand and live) that you could get a quick workout whenever you need at the convenience of your home. Yes, there are YouTube videos and other free options, but the consistency, variety and the quality you get from Peloton is worth the $12.99 for a lot of folks.

 

I believe the digital membership numbers will grow consistently. And, it is a great way to acquire customers for the hardware side of the business.

 

Also, Peloton has already shown it can scale easily from Biking to running to HIIT to yoga classes. It will be easy for them to keep adding whatever is the next fad in fitness classes.

 

I definitely wouldn't short it.

 

How is the Netflix comp "apt"? Netflix's universal appeal for consumers is obvious as nearly everyone in developed countries consumes scripted video content throughout their life, but Peloton's subscription service revolves around the hardware/exercise offering. Presumably customers will cancel their subs after they stop using the bike.

 

I guess jondoug is saying that even people who don't buy a bike/treadmill, still will be attracted to PTON yoga/etc. classes on subscription.

This is interesting direction, but IMO premature. I'd think most people don't even know that they can sub to PTON yoga classes without buying a bike. PTON could push in this direction, but I'd think Mirror is likely more attractive proposition for anyone who wants to do aerobics/yoga/etc. Especially if Mirror (or similar contraption) gets more full-featured and gets a better feedback loop.

[Spekulatius]

It wasn't that long ago that seemingly every suburban American house had a Bowflex home gym machine in the garage. How about the glorious device that was the Gazelle Freestyle? Anybody still watching their Jane Fonda VHS tapes? How about Billy Blanks' Taebo or P90X? Chest Expander? Geez, even the definitive biography of Buffett, our patron saint, contains an account of his brief infatuation with Bob Hoffman and York Barbell.

 

IMO - Not a valid comparison with a live and connected device with huge community aspects. I went long earlier this year and the only regret I have is that I did not back the truck on this one.

 

The, the community/ social aspect makes this a bit of a different proposition. I found the following excerpt from the last CC very impressive.

My favorite KPI is workouts represented by our Connected Fitness subscriptions. In the fourth quarter, workouts reached 76.8 million, up 333% year-over-year, equating to nearly 25 average workouts per Connected Fitness subscription per month compared to 12.0 workouts per subscription per month in the fourth quarter of last year. Our incredibly high engagement levels have resulted in continued low average net monthly Connected Fitness churn, which for the quarter and full year was 0.52% and 0.62%, respectively.

 

What’s the average monthly attendance for a gym membership , even a family membership? I guess it’s a whole lot less than 25.