Saturday, October 17, 2020

Peloton ($PTON)

A correspondent writes in about Peloton,

PTON sold $1,462 of fitness equipment with COGS of $834 million in the last 12 months (gross profit on equipment sales of $628 million).

PTON did $364 million in revenue last 12 months (subscription only) at a cost of goods sold of $156 million (subscription only) for a gross profit of $208 million (57% gross margins).

The cost of operating the business was $918 million.

If we assume they triple the amount of installed equipment and subscriptions before equipment sales are saturated, and we also assume they can increase their gross margins on subscription revenue to 65%, they will have gross profit of $709 million per year, which doesn't cover the current cost of operating the business...

If we valued the company on a multiple of this future revenue stream (3X larger than current business), it is trading at 38X future subscription sales revenue.
We had already been thinking about this tweet by Post M,

Which itself was a strikingly similar thought to our recent post, "What I Would Buy Instead of Tesla".

A reply notes, "A lot of those companies were 10X their current size."

2 comments:

Allan Folz said...

I expect Peloton has a large amount of the float locked up with insiders.

We talked about that with regard to Tesla. Handing off Tesla to the S&P500 indexes appeared to be Musk's exit strategy. That appears to have back-fired on him. Will be interesting to see what he comes up with next for his exit parachute.

Small float + index funds = ridiculous market cap. Every. Single. Time. Was talked about in the Longfin episode of TC's Chartcast. I think Mike Green has commented on it from time to time as well. Much of the dot-com bubble action is explained by small floats and locked-up insiders on by the companies going public.

What's needed is a reliable metric for watching and timing when the float finally swamps market demand. It obviously happens in hind-sight, but I don't see it getting caught in real-time.

Philly Cheesesteak said...

Hard to understand the calculus for large holders of these “stay at home stocks” - all trading at all time highs, all getting huge upgrades, at the peak of covid and lockdowns - staring down the likelihood of higher capital gains taxes next year, vaccines, and a return to normalcy. Insiders (management) have been big sellers of PTON, ZM, etc. but I’m surprised if the big investors aren’t also looking for the exit.

Also surprised none of the companies have done a large ATM facility raise like Tesla did to at least build a war chest for the pivot to new sources of growth they will all need in 2021 to continue to provide a story to justify these ridiculous valuations... if I was running PTON I would be raising a few billion right now to finance a huge roll-out of deeply-subsidized bikes going into every marriot (etc.) as a long term growth opportunity.

Hard to imagine anything other than deeply negative (if still positive YoY, which is probably not a given) comps for these stocks in 2021...