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Peloton: 17% Upside Left Followed By Decelerating Growth

Aug. 03, 2021 7:30 AM ETPeloton Interactive, Inc. (PTON)15 Comments
Khaveen Investments profile picture
Khaveen Investments


  • The company is a pioneer of connected home fitness equipment with strong momentum increasing its market share by almost 10 times in the past 4 years.
  • Its brand is one of the most popular among consumers with an NPS of 94 and a booming and vibrant community that keeps growing and promoting user engagement.
  • It is also acquiring equipment company Precor which provides a revenue run rate of $240 mln and international expansion opportunities through its more established network.
  • Despite the surge of its revenues by 100% influenced by the pandemic, our valuation based on a staggered P/S shows just 17% upside is left.

Peloton store
Sundry Photography/iStock Editorial via Getty Images

This article was amended on 8/11/2021 to reflect amendments to the market share observations and revenue projections.

Based in New York, Peloton Interactive Inc. (NASDAQ:PTON) is an exercise equipment company specialized in connected

This article was written by

Khaveen Investments profile picture
Khaveen Investments is a Global Macro Quantamental Hedge Fund managing a portfolio of globally diversified investments. With a vested interest in hundreds of investments spanning diverse asset classes, countries, sectors, and industries, we wield a multifaceted investment approach that combines top-down and bottom-up methodologies, integrating global macro, fundamental, and quantitative investment strategies. We serve accredited investors throughout the globe, which include HNW Individuals, Corporates, Associations, and Institutions. At the heart of our investment prowess lies specialized expertise in cutting-edge technologies that are reshaping the fabric of numerous industries. Our strategic orientation centers around a spectrum of booming domains, encompassing the transformative realms of Artificial Intelligence, Cloud Computing, 5G, Autonomous & Electric Vehicles, FinTech, Augmented & Virtual Reality, and the Internet of Things.www.khaveen.com

Analyst’s Disclosure: I/we have a beneficial long position in the shares of PTON either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Comments (15)

So this was the 17% bump we got and NOW we are headed down to the 80s
So if this grows at 0-20% from 2020 that means a P/S of less than 1 x Sales according to your chart which means market cap should shrink a lot and this would make a great short!
I know there is a lot of good analysis in here, but come on - one of your first bullets: "Despite the surge of its revenues by 100% influenced by the pandemic, our valuation based on a staggered P/S shows just 17% upside is left." They're about to cap off their 4th straight year of 100% growth. I agree that the pandemic wasn't a detractor, but this isn't even their largest growth year rev % wise.
@GregJuan ---Well they just guided for 6% revenue growth for next quarter and I am betting it will be worse than that ...
The Unintelligible Investor profile picture
There is a rather large error in the market sizing made here.

The article suggests the US home fitness equipment market was $14.5B, citing Statista (link below). But this is massively wrong. The article clearly states that this figure refers to "the total revenue of the sports equipment market in the United States".

So alot more than just fitness equipment (think baseball bats and football pads) and alot more than just home fitness equipment. You can see the absurdity of this estimate as the authors indicate that 80.8% of the home fitness market is attributed to "others". Well, if we exclude Peloton, Nautilus, and technogym, what "others" exist? NordicTrac? NordicTrac has $11B annual sales in the US alone?

The home fitness market is a fraction of this $14.5B figure, although home fitness certainly had a significant surge in 2020.

Check out what Nautilus said tonight. Demand curves for the Direct segment in Q1 and in the first month of Q2 have started to revert to more typical seasonality patterns. Now that Direct’s backlog has returned to more normal levels, the Company expects Direct sales in Q2 to be lower than Q1. Similar to many other companies, the Company expects external gross margin challenges to continue in Q2 and anticipates increased price pressure due to the ongoing chip shortage.

This doesn't sound company specific
TommyIrish profile picture
The US home fitness equipment market is valued at $14.5 bln in 2020 and is forecasted to grow at a CAGR of 2.9% through 2025. The percentage of the US population who exercise daily has increased to 19.3% in 2019 from 18.5% in 2010 as more people become more health-conscious.

As if this run-away growth market was not enough?

“In April 2021, Peloton completed the acquisition of Precor to help maintain demand for its products.”

What wannabe growth companies are all about - random acquisitions.

Pile in lemmings - gonna be gr8!
HardytheTrader profile picture
Thanks for your analysis. $PTON might be a great long-term investment, but recently released earnings reports are worrisome. Seeing $AMZN, $ETSY and other COVID-19 beneficiaries tank after earnings - some even in double digits - makes me cautious about short-term outlook for PTON. Oh and $PINS as well as $ROKU saw declining engagement too. PTON is a media company so weakness in engagement will tank the stock regardless of results

Analysis has major issues. First, it looks at "market" as "home exercise equipment" growing at 2-3%/year, when PTON as disrupter is displacing live gyms and attracting many customers who previously used neither live gym or home exercising equipment. Second, it uses a voodoo valuation methodology where P/S tracks revenue growth rate by year (showing severe stock declines in 2022 and 2023). That is not how things work. Of course PTON isn't gonna grow at 100% forever...the market anticipates that. If PTON does exactly what the market anticipates, the stock price would increase at the equity discount rate. It wouldn't plummet because revenue did exactly what investors expected.
Can’t have the 20% EBIT margins 5 years out.. sub margin will be mid 70% and eventually make up the lions share of the revenue. No way they burn 45-50% of revs via SG&A. This is at least a 30% EBIT margin business at scale. A strength product + international will mean revenue growth can stay >20% for the next 10 years imo
@AdAstra91 --LOL...sure. Margins were broken by 0.00% interest rates and lowering cost of bike down to $1800 which now is down to 1400 but yeah--margins are busted and hardware is 70% of revenue
@YO long-short your comment makes no sense.. Given the very low churn numbers, if hardware remains 70% of revenue 5 years out, the revenue figure would be ENORMOUS. I’d suggest running the math again. Market is forward looking
@AdAstra91 --They (Peloton) said hardware margins were 11% and now they cut hardware price by $400 which means margins are NEGATIVE 9% and hardware was 78% of REVENUE...YO this business is a CHARITY. Do the math. What the math will show is nothing but ENORMOUS LOSSES
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