This is one of my pet peeves: too many companies being classified as tech companies, when they aren’t (poster child: WeWork).
How is peloton a tech company? There are two parts of their business:
I gave him a “thumbs up” on his post because it is a very reasonable thing to say “good company, bad stock right now”. The point on my subsequent comment was merely to point out that whether it truly is a bad (or good) stock depends on when you purchased it, and on a go forward basis, what your views of the company’s opportunity and how other investors may view the company.
There was a very interesting Boglehead’s podcast interview with the vice chairman of Standard & Poors on the selection of companies to get put on the S&P500 and who they replace. While fascinating unto itself, you can easily imagine that, as part of the discussion for companies that participate in multiple sectors, the placement process could be difficult. However, it is pretty easy to imagine that at the time of placement, S&P viewed it that it was really Peloton’s technology that was driving their success and hence their placement.
As for going forward, I am not sure if re-placement is ever done as it could have significant effect on investors (sector averages, mutual funds, etc).
I guess that’d bring up the question of what a tech company is then?
Google:
A) Makes software
B) Makes hardware
C) Makes apps
D) Has subscription services
Peloton:
A) Makes software
B) Makes hardware
C) Makes apps
D) Has subscription services
You could call Peloton a fitness company, but they certainly aren’t the same as Lifetime. Inversely, you could call Google any number of things in the markets they are. You could call Microsoft an entertainment business since they own Xbox. Same goes for Google.
Ultimately, Peloton is successful because of its tech (hardware + software) - not because they make people sweaty like a gym. Nor because they try really hard to make/sell apparel.
Finally, no matter what their stock does - if we look at things like retention rate, it continues to be insane. Their filing noted it maintained 92% 12-moth retention rate, which matched what their filing a year ago said. In other words, people aren’t going anywhere once signed up.
Yep. Hindsight is 20-20. Good returns from IPO to date. Right now, however, things aren’t looking great valuation wise. And going even further off topic, valuations of everything are kinda scary right now.
Yes; it was and remains a brilliant business model. [FWIW: My wife is in that 92% and is completing her 5th year as a Peloton user].
Last week you wrote a great piece on the new Oura ring: “Oura Ring 3: First Impressions”. While you discuss the new membership model, you don’t mention Peloton. As many on the FB Oura threads note, the business model was likely implemented as a result of hiring their new CMO who was previously the SVP and Global Head of Product Marketing at Peloton. Many companies, including Apple and now Oura are now following the Peloton model. [FWIW #2: I bought the O3 as a new user, and am going through the sizing process now, and am looking forward to receiving the unit]
Note: Playing “Follow the leader” is not new in software. Adobe is ranked #2 in the world for migration from desktop to the cloud (they were early and it was a very risky move at the time). Now, lots of companies have followed suit, including in our fitness space, Training Peaks.
I dunno, Ray…that is a pretty broad brush you are using to describe Google and Peloton. The obvious difference being that software and internet technology is the driving force behind Google and hardware is the driving force behind Peloton.
Peloton really doesn’t have any extraordinarily unique software. They created a unique concept (spin / fitness classes at home with a sense of community) and it was no doubt revolutionary, but that doesn’t make it a tech company.
But using that term makes it desirable for investors and because it utilizes the internet as a portal, people want to call it a “tech company”.
I would argue that TR is far more of a tech company than Peloton.
But in Peloton’s case, the hardware is actually just a spin bike with a screen. It’s the software behind it that makes it all come alive.
One only has to look at the endless knock-off bike attempts, from no-name brands to big-name brands, and none have really caught on for one simple reason: They lack the software and the platform. The underlying content is largely pretty similar.
Without the Internet, and that platform, Peloton would cease to exist. Their patents for example are specifically around streaming fitness classes. And even moreso, Peloton doesn’t even need their hardware anymore - as they’ve shown with continued growth of their app-only model (though, the experiance is far better for hardware users - but hey, that’s besides the point).
I guess my challenge would be, if it’s not a tech company, what is it?
On paper, if we’re saying TR is a tech company - then Peloton has to be. Because on paper at a high level, Peloton does everything TR does. TR has workouts, Peloton has workouts. TR has structured workouts, Peloton has structured workouts. TR has control of hardware devices, Peloton has control of hardware devices. TR has training schedules, Peloton has training schedules.
Sure, they differ when you get into the weeds obviously like any company comparison (e.g. Adaptive Training on TR vs numerous sports covered on Peloton) - but if you step back to the half-average person trying to get fit, they both do the same thing via technology. Both companies can’t exist without the internet, and both companies design all their own software as a subscription they sell as their primary means of revenue.
What is your view of Amazon? Where does a company cross the line from being a traditional industry player that embraces the Internet as a platform, to a tech company that embraces an industry?
The whole notion of putting companies into fixed buckets (e.g. S&P500 sectors and industries) was perhaps useful when companies were stagnant in their business models, but is loosing its usefulness with the impact and pace of technology, not just in the what would classically called tech companies, but especially in other industries.
To give you another example similar to Amazon . . . Moderna. I was on a webinar with Stephan Bancel (CEO) who was describing to the group the reasons behind their meteoric rise. He first described his prior career, including at Eli Lilly, where the pace is drudgingly slow and typical of the industry. When he arrived at Moderna, he defined his company as a tech company and is operating it as such (lots of details). In addition, if you look at their vaccine development it is all tech: using computational AI to map the genetic sequence of the Covid virus against the human genome. Playing with mixtures in the lab, typical of the industry and the J&J and AZ approach, is not part of their process. So are they a drug company (because it is the product that is sold) or a tech company because it is how they do business? I think it is a similar line of questioning you would use on Amazon as to whether they are in the packaged goods distribution business or are a tech company (it’s obviously the latter that drives their valuation).
BTW: I had to laugh at myself when I incorrectly assumed that PTON was in the I.T. sector of the S&P500. While companies can be in both indexes, PTON is exclusively (as of now) a NASDAQ listed company.
If we define a tech company as any company that uses technology as a competitive edge, then there are a lot more technology companies out there. Conversely, would you consider Walmart a logistics company? For a long time, Walmart’s logistics expertise is what gave it a competitive advantage. One can argue that Amazon (excluding AWS) is trying to turn itself into a logistics company
Sure, but the hardware is what is driving the revenue. I would also say it is the experience (which is powered by the software) that makes Peloton what it is….the sense of community, etc.
I don’t think Peloton did anything revolutionary in terms of software….but it was absolutely revolutionary in terms of experience.
Everyone else pales in comparison because they can’t replicate the experience.
But again, Peloton’s revenues are driven by hardware……TR’s are from software. I see that as a major differentiator.
I’m not sure I follow this distinction if we are talking about Tech - technology - companies. Technology encompasses both hardware (e.g., chips, routers, switches, smart phones, …) and software.
To me, TR is a means to an end of becoming a faster cyclist. The workouts arent really fun, but the progress is rewarding. Everyone I know on TR is a cyclist getting stronger to be a faster real world cyclist.
Peloton by contrast, the workouts are in themselves fun. Everyone I know on Peloton, is not a real world cyclist, but wanted to basically be able to do spin classes at home.
Definitely generalizing here and based on the few people I know on TR and the half dozen on Peloton.
I personally have not invested in Peloton, although who knows if some funds in my 401(k) have a position. I just don’t know how much untapped market there is for new signups and then is this the next bow-flex or whatever and people move onto the next fad?
The big difference is Apple offered a new service to existing subscribers, at minimal development and deployment costs on their side, while Peloton tries to attract new subscribers to new services using (in part) dedicated hardware. The break-even point of both models is very different.
I guess my point is that you need to look at the nature of the company to determine what segment it belongs to.
IMO, Peloton is a fitness company, first and foremost. They are selling exercise equipment (primary revenue driver) and subscriptions to workouts.
Any “tech” they are using is a tool to sell at-home fitness.
A company like Google is a tech-driven company, where any hardware they sell amounts to a rounding error on their balance sheets.
I honestly know dozens of cyclists who own Pelotons. I helped start a Facebook group called Peloton Road Riders that is over 6k members now. Go to a Hincapie Gran Fondo on the East Coast of the US and you’ll see them all over the place.
There is certainly an overlap in customers, but if you drew a Venn Diagram with Peloton customers and cycling enthusiasts, there would not be a very big overlap.
Peloton is happy to get those people, but they aren’t their target audience, either.
Absolutely agree
Agreed. In my small circle, zero people went TR or Zwift to Peloton, but half a dozen went from occasional Soul Cycle riders to Peloton, and none of them have a outdoor bike beyond perhaps a 20 year old hybrid they’ve not ridden in 19 years.
Totally accept though, that my sample size is small.
I do not want to own a Peloton bike, nor the subscription … but, I did gym spin classes a bit 15 years ago, and I’m sure I’d enjoy Peloton. Still, rather use TR on my trainer and put the savings towards a training weekend each Spring with my mates.