PTON - Peloton

[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.

 

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.

Yes, bike fit is very important to a serious cyclist or triathlete, and you make some good points. If you're trying to win the race or win your age group or whatever, you want repeatability, and accuracy, which are more important than gimmicks. Plus you want specificity and transferability to race day. That's why I thought this case is remarkable. Trust me this guy is a serious cyclist. He has multiple expensive bikes, and I know he has at least one of the top indoor trainers already, because I sold it to him.

 

He was probably a little sheepish about telling me how much he likes his Peloton because he knows I've had two CompuTrainers in my basement for 15 years.  In their day, CompuTrainers were as expensive as Pelotons, but were geared toward only the most competitive of cyclists, and the graphics, and interface were consistently behind the times.

 

Another reason it was surprising to hear from a high level cyclist that he loves his new Peloton is that a while ago when doing research on Peloton, I spoke to some marketing specialists for indirect competitors to Peloton, and they basically said they thought Peloton would really be pulling a rabbit out of a hat in order to expand their market and I can't remember the specifics but they believed Peloton's market was roughly non-athletic women of a certain age who wanted to lose weight.

 

I'm not really interested in Peloton in any way, but I thought it was an interesting single data point and that I would pass it along.

[Broeb22]

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.

 

So either one person per household is cycling basically every day per month, or maybe 2 people are cycling every other day? Does that seem sustainable in a world where people aren’t locked inside their homes? Even 12 times per month pre-COVID is 3-4 exercises per week, not your average American.

 

Also, does anyone have views on if churn will go up or down by reducing bike prices? I’ll vote up.

[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.

 

So either one person per household is cycling basically every day per month, or maybe 2 people are cycling every other day? Does that seem sustainable in a world where people aren’t locked inside their homes? Even 12 times per month pre-COVID is 3-4 exercises per week, not your average American.

 

Also, does anyone have views on if churn will go up or down by reducing bike prices? I’ll vote up.

 

Where are people “locked in their homes “. Is everyone living in a 30 story tower in Manhattan here?

 

Where I live, gyms have been open since June (NH) and July (MA). Lots of people have taken on jogging and other outdoors activities. now, I personally wouldn’t go into gym because of safety concerns, but that’s another story.

 

I am sure COVID-19 is a factor for Pelotons success, but I don’t think it is the only reason. More like a catalyst. They will probably have a great winter season because outdoors here won’t be much fun.

 

25 uses a month is certainly for an entire family, but then gain for a family paying 2k for a bike and $59/ month May actually be a good deal, if you really use it 25x a month. Lots of people pay $50/ month for a gym membership and barely show up.

[Gregmal]

These results were Q2 though, which ended in June. And even in places that were open, capacity was reduced, and as you alluded to, there was apprehension to go out, period. Even if it was "allowed". So it's definitely something that helped. Does it have traction? I am sure it does. I'm sure there are dedicated users. But its the same type of effect we saw on grocery store numbers and boat sales. Things things got juiced by the ultimate catalyst, but simply pulled sales from the future. Of course this is a net positive, but if you are projecting high growth rates, for extended periods of time, off the back of these numbers, I think you will be disappointed. I am fine being wrong on this, but what growth do you expect for this Q, next year? What about the year after? At the current multiple, you need pretty robust growth, which I would probably wager, wanes as things return to normal over the next 12-18 months.

[BG2008]

These results were Q2 though, which ended in June. And even in places that were open, capacity was reduced, and as you alluded to, there was apprehension to go out, period. Even if it was "allowed". So it's definitely something that helped. Does it have traction? I am sure it does. I'm sure there are dedicated users. But its the same type of effect we saw on grocery store numbers and boat sales. Things things got juiced by the ultimate catalyst, but simply pulled sales from the future. Of course this is a net positive, but if you are projecting high growth rates, for extended periods of time, off the back of these numbers, I think you will be disappointed. I am fine being wrong on this, but what growth do you expect for this Q, next year? What about the year after? At the current multiple, you need pretty robust growth, which I would probably wager, wanes as things return to normal over the next 12-18 months.

 

Your imaginations suck big time

 

This is a Fitness As a Service or FaaS company.  It deserves to trade at 30x NTM Price to Sub Rev multiple.  Fight me. 

 

You can get stretching, bodyweight, yoga, meditation, biking, treads, etc.  I'll bet a 24 pack of Budlight that they will add kettlebell workouts in the next 12 months. 

 

For the price of $40 for the subscription and you get a suite of workouts and a random shoutout from Robin the instructor, this is a bargain. 

 

Health is wealth, sex appeals get free dinners, and you can post your before and after photos on social media for a ton of likes.  What don't you guys get? 

[Gregmal]

These results were Q2 though, which ended in June. And even in places that were open, capacity was reduced, and as you alluded to, there was apprehension to go out, period. Even if it was "allowed". So it's definitely something that helped. Does it have traction? I am sure it does. I'm sure there are dedicated users. But its the same type of effect we saw on grocery store numbers and boat sales. Things things got juiced by the ultimate catalyst, but simply pulled sales from the future. Of course this is a net positive, but if you are projecting high growth rates, for extended periods of time, off the back of these numbers, I think you will be disappointed. I am fine being wrong on this, but what growth do you expect for this Q, next year? What about the year after? At the current multiple, you need pretty robust growth, which I would probably wager, wanes as things return to normal over the next 12-18 months.

 

Your imaginations suck big time

 

This is a Fitness As a Service or FaaS company.  It deserves to trade at 30x NTM Price to Sub Rev multiple.  Fight me. 

 

You can get stretching, bodyweight, yoga, meditation, biking, treads, etc.  I'll bet a 24 pack of Budlight that they will add kettlebell workouts in the next 12 months. 

 

For the price of $40 for the subscription and you get a suite of workouts and a random shoutout from Robin the instructor, this is a bargain. 

 

Health is wealth, sex appeals get free dinners, and you can post your before and after photos on social media for a ton of likes.  What don't you guys get?

 

This is true, and certainly a bargain compared to my $170 a month Lifetime Fitness membership I used to have. I am sure the tipping point for me would be when PTON rolls out the "work out with MILFs" version everyday from 10am-11:30am. I would also like to see the virtual swimming pool option added on.

[Spekulatius]

Some thing died inside me, when I read about a $170/month gym membership.

This is true, and certainly a bargain compared to my $170 a month Lifetime Fitness membership I used to have.

 

Best deal I had with a gym was a membership with 24h fitness, that was prepaid for 3 years and cost $800 (this deal was available in the slow time of the year in June/July typically) about 15 years ago. That was cheap, but the great thing about this was an extension option where after 3 years you could extend the deal for another year for $60. I extended mine for about 10 years  Until I sadly moved in an area without 24h fitness. 24h fitness is not a high end gym, but the instructors were actually really good and classes were included in above. Even towel service was free.

 

After that, paying $30/ month for NY Sports club (a much worse fitness studio) felt like a big ripoff. Now, I have a small home fitness studio, but I miss the motivational aspect of instructors. Perhaps there is a Peloton bike In my future...

[Pelagic]

Some thoughts. I think there's a growing and largely untapped market in people new to exercising or who are self conscious about going to the gym/exercising in public. If PTON makes exercising easy (it does) and private (again, it does) then there's a userbase out there that might be willing to give it a shot. People spend thousands on diets and nutritional counseling, spending an equivalent amount on a PTON isn't that big of a stretch. I have no doubt PTON will also include nutritionists (if it doesn't already) into its platform for a complete experience.

 

The social aspect is important too. Imagine overlaying a game like Mario Kart into PTON where you're pedaling or running on their treadmill and competing against friends. Maybe even scaled based on your past performance to level the playing field between competitors. If PTON becomes a group activity and a way for distant/busy friend groups to stay connected, I wouldn't bet against them.

[merkhet]

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 =)

 

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.

 

+1000

 

This forum is super heavy on males, so it’s not super surprising that we would collectively miss on a number of companies whose products are primarily geared towards females. It’s also super heavy on people who are generally frugal, which again means there’s a huge blind spot for luxury goods.

[Gregmal]

Some thing died inside me, when I read about a $170/month gym membership.

This is true, and certainly a bargain compared to my $170 a month Lifetime Fitness membership I used to have.

 

Best deal I had with a gym was a membership with 24h fitness, that was prepaid for 3 years and cost $800 (this deal was available in the slow time of the year in June/July typically) about 15 years ago. That was cheap, but the great thing about this was an extension option where after 3 years you could extend the deal for another year for $60. I extended mine for about 10 years  Until I sadly moved in an area without 24h fitness. 24h fitness is not a high end gym, but the instructors were actually really good and classes were included in above. Even towel service was free.

 

After that, paying $30/ month for NY Sports club (a much worse fitness studio) felt like a big ripoff. Now, I have a small home fitness studio, but I miss the motivational aspect of instructors. Perhaps there is a Peloton bike In my future...

 

Eh, you only have your 20's once. No responsibilities and too much money is a fun problem to have. For $170, it was certainly overpriced, but not as much as it seems. Had an olympic sized swimming pool, basketball court, two floors of exercise machinery, spa, and a good bit more. Atmosphere was incredible. I grew out of it and now have a personal trainer which runs $225 a month but is definitely worth it. I cant get the same work out on my own so the cost is what it is.

 

As for PTON, my wife is due in about 6 weeks, so she's already asked and will receive one for Xmas...I will try to keep updated on the anecdotal bs, but I just dont see $30B here, unless $30B is the new $1B. My local athletic club runs $50 a month and of course there are the 24 Hour types doing $25 a month deals. For the workout nuts, sure, any price works. But for average folks, this stuff comes and goes like New Years resolutions. $30 a month or whatever aint $10 like Netflix. People will grow out of it and cancel. Although it took me 3 months of not attending once before I got off my ass at Lifetime and their $170  hitting my card, so maybe there will be a 6-12 month lag.

[BG2008]

Guys, I'm lightly trolling.  But I do think it is important to try to see the other side.  The markets have been more rational in valuation than we give it credit for tech companies. 

[Gregmal]

I guess it just depends what you consider a "tech" company.

 

EDIT: breaking news, Camping World just announced plans for a peer to peer RV rental platform! Techify it baby. Up more than 10x from the March lows, this baby now should have another 3-5x upside given the new RVAAS angle to it!

[Spekulatius]

I guess it just depends what you consider a "tech" company.

 

EDIT: breaking news, Camping World just announced plans for a peer to peer RV rental platform! Techify it baby. Up more than 10x from the March lows, this baby now should have another 3-5x upside given the new RVAAS angle to it!

 

I think RV’s are more likely a fad than Peloton bikes in my opinion.

[johnny]

Haven't looked at this company, but just bought the new bike for my wife, who made it known this was to be the purchase and exhibited a psychotic belligerence to my suggestion that we should look at all competing products before committing. There's obviously something very special and feminine and instagrammy going on here.

 

$50/mo is not peanuts, but when you've dropped $3K on the hardware, there's suddenly a much stronger psychological barrier to cancelling the subscription, since it probably feels, psychologically, a lot like cutting bait on the $3K. It's really hard for me to imagine the scenario where we drop the sub. I'd guess as long as the hardware is operational, we're on the hook. Which is saying something, since this very much falls into the "COVID purchase" for us--she refuses to step foot in the gym and probably will not until POTUS has put the finishing touches on the vaccine.

 

4-6 week fulfillment time quoted on the order!

[Broeb22]

Haven't looked at this company, but just bought the new bike for my wife, who made it known this was to be the purchase and exhibited a psychotic belligerence to my suggestion that we should look at all competing products before committing. There's obviously something very special and feminine and instagrammy going on here.

 

$50/mo is not peanuts, but when you've dropped $3K on the hardware, there's suddenly a much stronger psychological barrier to cancelling the subscription, since it probably feels, psychologically, a lot like cutting bait on the $3K. It's really hard for me to imagine the scenario where we drop the sub. I'd guess as long as the hardware is operational, we're on the hook. Which is saying something, since this very much falls into the "COVID purchase" for us--she refuses to step foot in the gym and probably will not until POTUS has put the finishing touches on the vaccine.

 

4-6 week fulfillment time quoted on the order!

 

She'll get a lot of workouts in on that Peloton if she's waiting for POTUS to invent a vaccine himself, although he is smart, like so, so unbelievably smart. You've never seen a guy as smart as him.

[BG2008]

Haven't looked at this company, but just bought the new bike for my wife, who made it known this was to be the purchase and exhibited a psychotic belligerence to my suggestion that we should look at all competing products before committing. There's obviously something very special and feminine and instagrammy going on here.

 

$50/mo is not peanuts, but when you've dropped $3K on the hardware, there's suddenly a much stronger psychological barrier to cancelling the subscription, since it probably feels, psychologically, a lot like cutting bait on the $3K. It's really hard for me to imagine the scenario where we drop the sub. I'd guess as long as the hardware is operational, we're on the hook. Which is saying something, since this very much falls into the "COVID purchase" for us--she refuses to step foot in the gym and probably will not until POTUS has put the finishing touches on the vaccine.

 

4-6 week fulfillment time quoted on the order!

 

She'll get a lot of workouts in on that Peloton if she's waiting for POTUS to invent a vaccine himself, although he is smart, like so, so unbelievably smart. You've never seen a guy as smart as him.

 

Guys, I'm going to step in and say let's stop any political conversation and focus on the investing concept of Peloton.  Political conversations can quickly derail a thread.  Thanks. 

 

Also, let's keep in mind that our wives are the bosses of us.  It's important to know where we matter in the grand scheme of things. 

[fareastwarriors]

Peloton thinks it can grow to 100 million subscribers. Here’s how

 

https://www.cnbc.com/2020/09/15/peloton-thinks-it-can-grow-to-100-million-subscribers-heres-how.html

 

Peloton CEO John Foley says the fitness company is aiming to have 100 million paying subscribers one day.

 

During its first-ever meeting as a public company with analysts and investors Tuesday, Foley listed 6 ways the company thinks it can meet that goal.

 

“There’s close to 200 million gym-goers in the world,” the CEO said. “That’s 200 million people paying hard money, month after month, to access what we believe to be inferior fitness equipment in an inferior location.”

 

[Gregmal]

Go big or go home, I guess. Not promotional or nuffin. Just 50% of an optimistic TAM...

[Broeb22]

Go big or go home, I guess. Not promotional or nuffin. Just 50% of an optimistic TAM...

 

Hopefully he doesn't spend on S&M on that TAM estimate...but if he does I can just watch the cash flow into Google's and Facebook's ads businesses.

 

I guess thats one takeaway from Peloton and every other tech-y business like meal plans. Maybe the Google and Facebook ad machines are really very, very dependent on the crazy amounts of money being thrown at growth by huge-TAM-seeking VC-backed companies.

 

A few years ago, it was HelloFresh and their ilk, now its Peloton and Grubhub, maybe tomorrow it will be a VR/AR exercise bike that puts the face of your favorite celebrity on the trainer so you can ogle Taylor Swift or Madonna while you exercise. But I bet Peloton already thought of AR/VR and has bikes planned for 2025 to capitalize on that.

[patience_and_focus]

Go big or go home, I guess. Not promotional or nuffin. Just 50% of an optimistic TAM...

 

Doesn't seems promotional to me. The guy genuinely believes in this. One can read his interview with Time magazine in May of this year (https://time.com/5839552/peloton-ceo-john-foley/ ). I think he is repeating this in his head and saying the exact same thing. Entrepreneurs are like that, they have to imagine and believe in something that usual folks cannot.

 

He also seems to be focused on "SAM". On a question about a cheaper bike -

 

"What’s the optimal price point, $1,000?

I don’t know. I wouldn’t think about it as an initial cash-outlay. I would think about it as a monthly payment. I think if you can get to 20 bucks a month per person, you’re starting to get below Planet Fitness-style, low-end gym chain affordability, and we think that that’s a pretty big opportunity for Peloton."

[Broeb22]

What's the metric(s) that tell you PTON is not gaining traction with subs?

 

I guess that's churn really, but bad churn numbers can be masked by fast growth for a while.

 

Maybe subscription revenue growth not growing as fast as Product Revenue?

 

 

[Gregmal]

I mean 50% of the entire workout universe is a little bonkers. But hey, you never know.

 

What I do know is that many people go to the gym with friends. Many go to get out of the house/office. Many go for the atmosphere. This can not be replicated online/at home. Additionally, how much of the TAM is compromised by the household subscription? In other words, how much of that TAM makes up people with similar interest/an active household? If the husband, wife, a one of the teenagers is a hardcore fitness enthusiast(excuse my use I the traditional family, dont be offended..) thats great value for them, but poor value for PTON relative to the single career focused female living by herself. Or the new mother determined to get back into shape with the fat husband who never gets off his ass. Sure, they have levers, but just assuming they'll take huge share of the entire gym goer universe is a little bit of a stretch. This is also the flaw in the Netflix comparison. America is a fat and lazy country. Sit on you ass and chill with a huge video catalogue is definitely not the same market or value proposition as ride a bike and sweat hard for 30 minutes at 3x the monthly cost. The biggest thing with working out/gym memberships is that a very large number of those people really do not enjoy going, at all, which eventually leads to fatigue with the product/service.

 

Where I would focus, but hey its just me, is pushing hard for partnership subsidies for users much like AAPL has with the iPhone through carriers. Perhaps offer incentive for employers/health insurance providers to make this available to people in exchange for some sort of benefit. IE lower rates as it promotes a healthy lifestyle or whatever. Find someone to make $2k upfront affordable the same way AAPL found a way to make $1200 phones consumable every 24 months. Otherwise, the user base, at least in my eyes, is much smaller than people seem to believe right now, at a $25B valuation. Buying $100 leggings(LULU) or $7 lattes(SBUX) is much different than spending what for most folks is 1-2 months rent on a stationary bike...

[patience_and_focus]

Probably belongs to APPL thread as well -

 

https://www.nytimes.com/live/2020/09/15/business/stock-market-today-coronavirus/apple-plans-a-digital-fitness-subscription-as-more-people-work-out-at-home

[LounginMKL]

This is also the flaw in the Netflix comparison. America is a fat and lazy country. Sit on you ass and chill with a huge video catalogue is definitely not the same market or value proposition as ride a bike and sweat hard for 30 minutes at 3x the monthly cost. The biggest thing with working out/gym memberships is that a very large number of those people really do not enjoy going, at all, which eventually leads to fatigue with the product/service...

 

...Buying $100 leggings(LULU) or $7 lattes(SBUX) is much different than spending what for most folks is 1-2 months rent on a stationary bike...

 

I thought about it some more and I agree with your above points. Pricing aside, it's much easier for users to continue their subscription/ repeat buy if it is an indulgence (NFLX/SBUX/CMG/LULU). Investing in PTON has to come with some opitmism that people will stick with their aspirational purchase, which historically has not been a good bet...

 

Love the product and the user base, but hard to invest at this valuation... But hey, isn't this your typical growth investing conundrum!?

 

Disclosure: No position in PTON

[LounginMKL]

Probably belongs to APPL thread as well -

 

https://www.nytimes.com/live/2020/09/15/business/stock-market-today-coronavirus/apple-plans-a-digital-fitness-subscription-as-more-people-work-out-at-home

 

This could either be taken as "hey, it's a proven market if AAPL is involved" or "f**k, AAPL is involved."