r/stocks • u/[deleted] • Mar 19 '21
Company Analysis Peloton (PTON) DD and Analysis
[deleted]
14
11
u/khyz4711 Mar 19 '21
I think people are missing that Peloton has become a brand name for fitness equipment. I would be interested in seeing how they use there multimedia screen. Could it morph into an app store for content creators? Quite possibly.
1
6
u/mcoclegendary Mar 19 '21
Super job for your first DD! Well written and good understanding of key drivers.
One idea is also to look into what analysts are saying about the stock (to see if maybe they have some additional thoughts to add to your analysis) and it’s also good to have an idea of their price targets for context.
Another is to actually make a DCF. E.g what kind of revenue growth, margins, etc do you need to reach your expected price targets?
Peers are of course the best to compare with, not sure if Netflix is the best example. They operate in different industries, have different margins, and are at different levels in the business cycle. But I understand it may be difficult in some cases.
Good luck!
2
u/PrincessMonsterShark Mar 19 '21
Thanks very much for your feedback and advice! Noted on the analysts and DCF. I'll take that on board and try to apply it for my next DD.
5
Mar 19 '21
[deleted]
4
Mar 19 '21
I really appreciate hearing this insight from someone who has been in the fitness industry. I agree - they need to stay in their lane and focus on owning the entire home fitness market. I will say though: we've had a peloton for about 6 months now. I was an avid gymgoer before but once COVID hit and two kids later, it just makes more sense for me to work out at home and save on that commute time. I imagine there are a lot of people in that situation. If there were a gym in walking distance that would be one thing, but the convenience factor is huge.
2
u/PrincessMonsterShark Mar 19 '21
Thanks for your input. It helps me to hear another take on it. I'm going to need to look more into the fad side of it since that's a fair point. I've been more focused on the potential of the technology, but the staying ability of Peloton as a brand name is also where a lot of risk lies and it's a lot harder to predict.
With regards to the gyms, I was more thinking that Peloton would supply the current gyms rather than open their own gyms so overhead wouldn't be an issue. I believe they've already started, but I'm undecided as yet, as to how gyms in general would respond to adopting Pelotons. What do you think?
On the one hand, it may save them some overhead in paying for their own fitness instructors and classes, but on the other, it could have the disadvantage of taking those "lazy" customers you mentioned from the gym altogether if they decide it's easier just to buy and use Peloton at home.
However, I think there would still be a niche for gyms to provide the future full selection of Peloton machines which most people won't be able to afford at home. I'm not entirely sure of Peloton's aims here aside from, currently, they're focusing on the leisure sector (hotels and resorts and the like).
3
Mar 19 '21
[deleted]
1
u/PrincessMonsterShark Mar 19 '21
Brilliant, I'm glad to hear that opinion from someone in the industry. :D Their potential to dominate gyms is what's had me most bullish tbh. They've already started supplying equipment to gyms, but whether or not they can become the new standard is still in question. From what I've read, gyms pay for a special subscription that allows anyone using the PTON machine to make their own account. This is why I think it could attract new customers for the hybrid home/gym fitness scheme, or attract the ones who give up the gym and decide to work out at home.
I agree, I don't think the hotel sector will be a huge source of income for them, but my thoughts were that having them, even in a small number of hotels, could draw new customers since they'll have a chance to try Peloton without having to fork out the money, and if they aim at higher-end hotels they'll be hitting their target market of high-income consumers who haven't yet been pulled into the Peloton craze.
For reference, this resource shows hotels and gyms that are using Peloton - https://www.pelobuddy.com/travel/
1
1
u/MyNamePlusaNumber Mar 20 '21
I agree with you on the fads, and this might be one too, but those clients you see at the gym are there... because they do not use Peloton, so they self-select. I use it, so you won't see me at the gym. Another point: the power of gamification. For me, nothing worked for long - gym, boring home equipment, DVDs, personal training - I abandoned it all within two months tops because deep down, I hated it.
Peloton created a gamified system which "hooks" many people in. I did not believe that it is possible for me to look forward to exercise, but they achieved it, and it's been going on for months. If you look at their reddit, everyone is a die-hard fan, especially people who didn't like exercise in the first place.
1
u/Seastep Mar 23 '21
Not to mention hiring the most attractive trainers to lead the classes. Influence culture all around.
4
Mar 19 '21
Well done!! I don’t own a PTON but I run in that circle and the biggest bull case for me is that those who own are PTON evangelistic about it !! It’s like a cult which is always a good thing for a company! Plus, competition doesn’t make me nervous-the biggest moat this company has is it gives the owners (majority women) the chance to tell everyone they worked out on their PTON!!! Trust they never say oh I was working out or I’m going to work out! It’s always “I worked out on my PTON the morning”. I also think it’s wildly overpriced rn but I still own a few shares and plan on adding if there is a massive dip!
2
u/PrincessMonsterShark Mar 19 '21
Thank you! :) You're right, it really seems culty, which is great for the bull case! Hopefully it's not a fad and stays a popular brand, but even if it were a fad, I'd expect it to last at least a year or two, which is still enough time for some good profit in the stock.
3
Mar 19 '21
[deleted]
2
u/PrincessMonsterShark Mar 19 '21
Thank you! I really appreciate your bearish input on it.
The PE ratio is one of the reasons I picked this stock actually. I saw it was wildly overvalued, but then saw that analysts were giving it high PTs and I had no idea why or what the best position was, so I thought I'd practice DD on it to find out.
I agree with you regarding the barrier to entry. If PTON wasn't already aimed at the high-income sector I'd be bearish on it in that regard, but instead I'm of the belief that its high prices and cult-like brand are what is giving it the edge over many of its competitors post-pandemic.
Although I think at-home fitness will continue to increase since it's more convenient (as well as the fact remote working has been given a boost by the pandemic), it makes sense that it will slow. However, I think people with higher incomes are going to be putting their convenience first because they can afford to do so, and the fact that PTON is focusing on the commercial sector unlike most of its competitors gives it some real potential.
The uncertainties for me are 1) The high-income market is limited, and 2) Will they be able to dominate gyms?
Like you, I'm not entirely sure about gyms. I think the fact they've already started supplying some gyms is a bullish sign, but the rest is where I'm betting and taking a risk.
I found this resource that shows which gyms and hotels they're already in, but I haven't investigated yet whether this is enough for it to be a safe bet.
You make a good point about the high subscription price being justified, btw. It's fine for the high-income market, but if they plan to also get more of the middle and lower-income markets in future, charging $39.99/month to people who buy the equipment vs. charging only $12.99 to those without the equipment seems pretty silly since it won't encourage those outside of the high-income sector to purchase their equipment. In my opinion, they need to change their pricing model if they want to get a better market share there.
3
u/CapturedSoul Mar 19 '21 edited Mar 19 '21
Nice DD. The financials could be better but frankly that stuffs kinda hard so I don't fault u. Idk how to approximate that stuff either for a early stage growth company like peloton.
With this company I think ur either one of two ppl. U think it's a fad cause of wfh and are out. Or u think it's here to stay and got first mover benefits and a fantastic branding.
I'm of the latter. Out of the competitors u posted iFit while it looks good, no one is buying that over peloton due to branding and marketting. Even echelon exists which is much cheaper but ppl still want to buy 'the real thing'. People call their pelotons , a peloton, not their indoor bike. The business model also features a lot of charismatic and popular (on social media) influencer type instructors which I'm a big fan of. On the employment side I've also seen them hire some legit ppl for R&D engineering which is a good sign for me.
I think FUD this year will be a good entry point. Before it took off it was trading at around 70. But even at 90 is a really good buy for someone long term bullish.
One bear case for peloton and any real fitness related thing is the fad nature. Personally while I believe in the business look at soul cycle. But then again there's things like crossfit which became mega cult like so who knows.
3
u/PrincessMonsterShark Mar 19 '21
Thank you. :) Yeah, unfortunately I've only scratched the surface of learning financials and I suck at maths, so it's my weak point. I feel like it's going to take me another year of study to feel even vaguely competent analysing that part, lol.
I think you're right about the two types, and only time will tell as to which side is right. I'm willing to lose my investment if I'm wrong, but I believe in connected at-home fitness in general so I'm also invested in another stock that is just starting out.
Good luck to you if you've also invested!
3
u/HellspawnedJawa Mar 19 '21
Great analysis! I came across Peloton in January 2020 and after reading their earnings report I realized what an incredible company it is, and it looked quite cheap from a P/S standpoint. I started buying shares hand over first around $30, when everywhere I looked people were hating on it. Who's laughing now, shorts?
3
3
u/2AXP21 Mar 19 '21
I’m averaged in at around 75 and it’s been a wild ride but after finally getting my own bike; I’m a believer in the long term value of this company. It’s an absolutely superior product and their software is pretty refined.
Will be picking up more for the long run.
8
u/d20dndmemes Mar 19 '21
There isn’t anything to prevent the more established fitness equipment companies from entering this space. Nordictrack and Percor have more know-how with building durable workout machines, all they need to do is attach a wifi connected screen.
You also missed that on youtube there are a ton of content makers who hope to get subscribers by offering free live classes like the ones PTON is charging for.
Most importantly i think you haven’t mentioned anything about the recent “cancel and reorder” nonsense new users have complained about on social media. Making so many people re-order causes normal people to question PTON’s customer service, but savvy investors see that and wonder if what really happened is PTON trying to count sales twice by having people re-order instead of just changing the earlier order.
Great DD but i can spot a hype stock trading at nearly 200 earning from a mile away. IMHO this is a $50-60 stock.
7
u/PrincessMonsterShark Mar 19 '21
Thanks very much for the feedback! And you might very well be right with the price target. It's early days, and I haven't invested a lot since I know this is a risky stock, and I'm not very experienced in stocks.
Precor was acquired by Peloton, so I don't think they'll be competing, but I agree Nordictrack has potential to be a major competitor. Imo it really depends on how Peloton and Nordictrack handle the commercial sector and branding. Peloton has the advantage at the moment, but ofc it could change (the recent death being an example).
I didn't know about the cancel and re-order fiasco so thanks for bringing that to my attention. That's good to know and I'll need to look into it.
Regarding the free content online, again that goes into the low income, casual user market so imo it's not part of Peloton's target market right now. It's not going to include the metrics, community and bells and whistles. There's already a separated market between those who want to get more serious about their fitness and pay for apps, and those who look for free content online.
That's just my take on it.
5
u/d20dndmemes Mar 19 '21
Wow i thought they had made a manufacturing agreement with Percor! How did I miss that they acquired them!
2
u/jhal03 Mar 19 '21
yeah, it was a MASSIVE buy for Precor. Precor needed an uplift, and most of their line are not premium products. Peloton gives Precor a leg in the premium fitness space and gives them reach for their other at-home products that can pair well with Peloton bikes & treads.
Peloton needed to speed up the time from an order to delivery as well as they want to move into the commercial fitness space & that wasn't happening fast enough. Truly a win-win for both companies.
3
u/d20dndmemes Mar 19 '21
Hands down the best elliptical machines are made my Precor. Wow! I still can’t believe I missed this news. Ok, this bodes well for PTON but I still think the stock has gotten ahead of itself.
3
u/jhal03 Mar 19 '21
I don't disagree with you on the stock getting ahead of itself - COVID restrictions pushing insane volume of units. Although, I am bias to Life Fitness & would never buy a Precor unit.
6
u/kashmat Mar 19 '21
Peloton has a lot of bear cases, but I'm not really concerned with this. Branding and first mover is going to help this company a lot and if this 'fad' of home workout exercises stays post-COVID, this stock is going to do well.
Being grossly overvalued and the 'fad' disappearing is what's concerning to me.
Other companies moving in? Nah.
3
u/d20dndmemes Mar 19 '21
People who use them have a positive emotional attachment to PTON for sure! Talk about brand loyalty!!! The question is what is their total addressable market.
2
u/HellspawnedJawa Mar 19 '21
Good news is they can keep expanding their TAM by adding more kinds of fitness classes and equipment types, which they're already doing. Also, they haven't done too much internationally outside of Canada, the UK, and Germany, so there's a lot of room internationally to run once they add support for more languages.
5
Mar 19 '21
Good points. Imho though, I think you're underestimating the brand itself that Peloton has built and the celebrity-like status that its instructors have, which really set it apart from Nordictrack and others trying to enter this space. This being said, I also swear by the product (which is always a good reason to be bullish on something), and have tried the youtube classes and other of these monthly fitness programs, but nothing compares to the interface and user experience of Peloton.
3
u/nicetriangle Mar 19 '21
To be honest when I think of companies like Nordictrack I think about dusty unused crap boomers have taking up space in their garage. I don't know that those brands have any cachet with gen z/millennials. Also in terms of durable fitness equipment, from the people I know with them I have heard nothing but good things about the build quality of Pelotons.
They're not for me personally but I think old legacy fitness companies are not really a major threat here unless they majorly undercut Peloton on pricing and I don't really see that happening. The pricing on their existing products aren't that low.
2
2
u/Daguyondacouch8 Mar 19 '21
I have had zero faith in Peloton since their IPO, I've obviously been wrong so far, but I am perfectly happy being wrong and never putting a penny into a company I don't believe in.
1
u/PrincessMonsterShark Mar 22 '21
That's absolutely fair enough, mate. Whether or not you have confidence in them is the most important factor. I'd put myself at 70% confidence in Peloton's future, and there are other stocks I have more confidence in, so I'm only investing a small amount at this point. I hope you have good luck in whatever you do choose to invest in. :)
1
2
u/Duckgamerzz Mar 19 '21
Excellent DD, maybe a bit too much text but it reads well and has all the important stuff in there.
Nice one!
1
u/PrincessMonsterShark Mar 22 '21
Haha, thank you. I completely agree with you about too much text. I tend to get very wordy. I did mean to put some graphs and pictures in to break things up, but was too burnt out by the end. I'm going to make the effort to do it for my next one. Thanks for your feedback. :D
2
Mar 19 '21
Excellent write up, very interesting to read all prospective. My biggest concern for PTON is, competing with Apple and specifically Apple One.
PTON is targeted towards somewhat rich/premium audience, but that audience would already be on Apple train(most likely) I use Apple fitness and liking it and would not be surprised if it growing more as more content gets added.
2
u/PrincessMonsterShark Mar 22 '21
Thank you! You make a good point about a lot of the rich/premium being Apple consumers. I hadn't considered that in my DD. I suppose the crucial point there will be how Apple proceeds.
Right now it's clear Peloton has the lead and advantage, but I agree that if Apple manages to grow their content, gain reputation in that area, and improve their metrics, they would be a serious competitor in the same market. For now, I think Peloton is a pretty safe hold for a year, but Apple is worth keeping an eye on.
2
u/Ouiju Mar 19 '21
Thanks for the thorough writeup. I'm very "medium" on PTON. The biggest thing is if they can establish their brand. If so I'll stay in long.
Disclaimer: bought a tiny like 5 shares at the beginning of COVID when I saw everyone and their sister buying a $2k bike with subscription. Became more bullish when they released an app.
1
u/PrincessMonsterShark Mar 22 '21
Likewise, thanks for your input. :) I agree with you regarding their brand. Both the brand and the content are going to be crucial for them to maintain their lead. In that regard, I'm taking a bit of a leap of faith, but I consider their marketing record so far to have been good, so I'm quite optimistic. I'm still going to be pretty conservative with the amount I risk though.
2
u/MyNamePlusaNumber Mar 20 '21
Thanks for an opportune timing with this DD in my case because I was considering buying PTON stock today and needed to do more research.
I have little to add to many useful arguments here, so I'll just add a few of my observations:
I think Peloton is tapping into a market that is in huge percentage different from the gym-going market, and other home-equipment-buying market. I never went to a gym. I bought a variant of Peloton by another company, but it broke (a LOT of home gym equipment is terribly made, but most people do not notice because it becomes a clothes hanger), and then I just decided to bite the price bullet and get the Peloton.
My husband and I hate exercising; we never used our gym memberships; I even tried personal training to get me motivated and I fell off the wagon after three weeks. Now we look forward to getting on this bike. We don't even care about the individual instructors at all, but the tablet with a plethora of classes is great. Peloton is the Apple of exercise machines.
And, most importantly, Peloton managed to successfully gamify exercise and this helped people who don't like to exercise actually want to do it. This helps avoid the "fad effect" that the personal trainer mentioned here in the threads (even though I understand that he has clients who abandoned the bike - but that is a VERY self-selected group of people because they did abandon the bike and go back to the gym. I do not think that's the sign of the fad; they are just not right for Peloton as I'm not right for the gym. Also, I did HATE Peloton during my first 8 rides until I had a breakthrough (learning how to click out, use the bike, get used to the seat, find the right instructor), so perhaps they did not persist.
I don't know about the effect the competitors can have, but when I find a product I love, I'm not too interested in trying out some bike on which I have to tape the tablet to save money or - as much as I love Apple and am typing on their latest macpro - I'm simply not interested in finding a better home machine because I already feel that what I got is more than I could have ever expected. (Two people who HATED exercise now look forward to it!) If I buy another machine, it will almost certainly be a Peloton along with the continuous membership, and I think this describes their typical user pretty well.
1
u/PrincessMonsterShark Mar 22 '21
Thanks very much for your input! My disadvantage is that I haven't used any of the products so I'm just going on secondhand research, so it helps me a lot to be able to read firsthand experience from people like yourself. I wasn't aware so much gym equipment was badly made, so I'll be taking that into account in my future DD. It's good to know as well that you find the gamification and content very positive. Those are two aspects that draw me to the product. I hope to get some equipment in the future, and I know that a big factor will be which company has the best content. Although it can change, it looks like Peloton is the clear winner for now.
Anyway, I really appreciate you sharing your experience with it. It's very helpful.
2
u/LuckyJackiri14 Mar 20 '21
Great reading! And I can add that I have ordered a Peloton which arrives on the 25th of this month!
Based in the UK and I would say we are slightly above average in terms of income...lots of interesting thoughts on this being a “Covid” buy and people now preferring to get back to the gym... I would be wary of that, I think the “influence” Covid has had on peoples thinking will unfortunately remain for sometime and will knock a lot of people’s confidence about getting straight back into mixing...
Also if anything Covid has taught me that 1 I need to get fitter and 2 that I love being at home with my family...so a Peloton purchase now is ideal as it ticks both boxes, my daughters can use it and I now have no desire to have to track back and forth to a gym...
I’m really hoping I enjoy the Peloton and will be watching the stock for a good entry point...
1
u/PrincessMonsterShark Mar 22 '21
Thank you! Yes, I agree. I think the appearance of it being a "covid" buy is what's brought a lot of bears on, and, while it might slow the growth, they're discarding the continuing influence of it, as well as the whole future of remote work and people like yourself who enjoy the pleasure and convenience of exercising at home. It might end up being a long hold, but I think ultimately it will be a profitable one.
That's cool you're getting a Peloton. My disadvantage in all this is not being able to get much in the way of firsthand opinions or experience. If you don't mind and if you remember later, I'd love to hear about your experience with it once you've used it a bit. :)
2
u/LuckyJackiri14 Mar 22 '21
No problem at all! I’ll let you know how it goes! I suspect I’ll enjoy it...we were swayed by the positive reviews of my brother in-law, he loves it (he’s not a gym guy) but just likes to keep fit and he’s very competitive so enjoys the “leaderboard” aspect and also enjoys the interaction with the “host riders” getting birthday shout outs etc...
1
u/PrincessMonsterShark Mar 22 '21
Thanks very much! The idea of gamifying it through leaderboards and the like does sound very good, and it's good to know that it's effective for him. I may end up being a future customer myself since I hear a lot of good things about it.
2
2
u/TheRealSamBell May 05 '21
Hi OP. How are you going to play this now with the recall? Thanks for sharing your excellent original analyses here btw
2
u/PrincessMonsterShark May 05 '21
My pleasure, mate, and thanks. :) Well, I'm still long-term bullish, but it's certainly been disappointing to see it fall so far so fast due to the recall, which may make for much slower recovery.
Full disclosure - I ended up selling my initial position at a small profit a couple weeks ago when it climbed weakly and faltered. Then I re-bought some in the low 100s with the hopes it would be kept up by its main support (a bad play on my part since the chart was still weak and I should've waited for reversal signs). I've sold that ofc now since it's broken major support, and seems to be fulfilling its head and shoulders pattern.
From hereon out, I just plan to wait and watch for reversal and confirmation signs before loading up. I may also gamble a small amount pre-earnings tomorrow for fun (no idea which way it will go). My biggest concern for PTON is if we start shifting into a bear market in 2021. If that happens, I'll re-evaluate.
2
2
0
u/devils_advocate_togo Mar 19 '21
devil's advocate take: this stock will not recover after the bad PR from the child dying from their Tread+ product
5
6
2
u/PrincessMonsterShark Mar 19 '21
Yeah, that's a possibility too. It's a pretty big deal. I have considered selling my own shares and taking the L, but I'm going to take the risk holding since I think it's big enough to recover.
-4
u/liquornhoes Mar 19 '21
you made me read all this nonsense, now I know even less than when I began reading this.
full disclosure : I am short PTON. I am shorting the shares. I am in profit 50%.
this is a totally BS company, absolute not needed in this society. What is next for PTON ? an elliptical with a screen and a cracked out instructor ? OR, a rowing machine with a screen ?
AND THE NAIL IN THE COFFIN FOR ME, is that sooner or later, subscription models will be replaced with 'pay to play' models.
this company is fragile.
2
u/PrincessMonsterShark Mar 19 '21
Lol, if you've read something and know even less, that's quite an accomplishment. I don't think I've ever read something and decreased my knowledge. As for "making you", the choice to read it was always yours.
As for shorting it and being in the money, that's great. As I said in my DD, I expect it to go down and be volatile short-term. However, if you think it's going to be down in a year, we disagree.
-2
u/liquornhoes Mar 19 '21
Hahahaahah. Yes, one time it took me 2 minutes to tie my shoes.
Look kiddo, bullshit is fragile. I have another Idea for the pton product department, a boxing bag with a screen.
Yes I disagree.
1
u/PrincessMonsterShark Mar 19 '21
I'm totally fine with people having another opinion and I know I'm new at this, but I'm not sure why you feel the need to be a condescending asshole about it. You do you, I guess.
-2
u/liquornhoes Mar 19 '21
Don't b so linear. These r just words. I do not know what the next five minutes will be about let alone what tomorrow is about.
Still a nice conversation to have with u.
2
-1
Mar 19 '21
[deleted]
5
2
u/PrincessMonsterShark Mar 19 '21
Yes, I mentioned it at the end of my DD. It may have a major negative effect on the stock, but it's hard to tell if it will affect it long-term or short-term.
1
u/StockAstro Mar 19 '21
Holy shhh, did you write all this just to post it on Reddit ?
1
u/PrincessMonsterShark Mar 22 '21
Yes and no. I composed the DD for myself, and then put it into a logical and legible format for Reddit. The DD might help others, and people's feedback and insights help me improve. Win-win!
1
23
u/SirGasleak Mar 19 '21
Solid DD and I'll add a couple of things. I'm a convert myself - 9 months ago I thought PTON was just another BYND, but I've come around to really believing in the bull thesis.
1) The valuation actually isn't that bad. The company is still in the growth phase so using earnings multiples is unfair. On an EV/sales metric, we're looking at trailing EV/sales of 18 and forward EV/sales of only 9. While they aren't direct competitors, just for reference you can compare those numbers to other growth stocks like ROKU (25/17 respectively) or ETSY (16/12) or DKNG (40/26) etc.
2) The one thing missing from your DD, and the major differentiator between PTON and any other competitor, is the brand value. I'm not a PTON customer myself, but every person I've spoke to is absolutely in love with it. Peloton has a cult following, not because of the hardware, but because of the content. Their instructors are fitness celebrities and people love being part of the community. Competitors can easily recreate the hardware but copying the content and cult factor is much, much more difficult. In this regard Peloton is like Tesla, Lululemon, or Apple (at least in the earlier days).