We’ll get a better sense of their financials - both where they are at and the extent of their cost cutting plans - on the 8th from their Q2 earnings release and conference call (Fiscal Year is July 1 - June 30). No doubt they will use this opportunity (stock tanking) to clean house without destroying the asset.
I’m always surprised by how many people know someone with Peloton products on this forum, I’m in the UK and have never known anyone that I know mention them at all. Admittedly I am not exactly the life and soul of the party but never once has anyone said they own one.
Out of 244 people I follow on Strava, I would say I see 2, maybe 3 people are using TR regularly in terms of uploading workouts. These users range from beginner to domestic pro’s. Obviously some people may have things set privately and I only know about 175-200 of those people personally or acquaintance from racing etc, the rest will be pro’s.
Zwift on the other hand seems way more popular, I would estimate at least 40-50 people regularly upload workouts, my feed is full of them, especially at this time of year.
I don’t think TR appeals to many people at all within my circle, Zwift on the other hand is more of a turn on and go (people also do workouts, group rides, races etc) whereas even though the user may want to improve, they don’t want a full on structure. The training phases on TR are too long and daunting and not sure people have the want or will to create a proper training plan, that is just not the market here at all in my experience.
I realise in the US and other countries the weather can be pretty extreme for 3-6 months of the year whereas in the UK we generally only get pockets of time where you can’t ride (on the road at least) so that always makes me wonder if TR is more geared to those people who know that they wont be riding outside for quite sometime so it makes it easier to stick with a longer plan.
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I’m gonna put the over / under of them being taken private by private equity at 15 months.
Place your bets.
It’s not an unreasonable thought process. However, I’d take the side that they will remain public or be purchased by someone the size of Nike or Garmin (that latter path being too early to determine).
P.E.'s typical enter the picture when they see major opportunity for cost cutting, can debt-leverage the assets, and bring in management controls that the team doesn’t seem to understand (P.E. typically doesn’t bring in domain knowledge greater than a company). We’ll learn more on the 8th, but it seems that Foley is already out in front of the cost and cash issues by bringing on McKinsey to help (whether he initiated this or the BoD, we don’t know). And I don’t see the debt leverage play. - what would you collateralize? I don’t see banks/lenders collateralizing Peloton’s fixed workout library as they are tightly tied to high quality instructors which may be the real company risk [the better ones are like rock stars]…
I used to be a partner in a firm that specialized in private workouts of niche sports & sports related companies. Camelbak, Calloway, Crossman were all tombstones. A strong brand in the sports category is a dog that can really hunt.
But it can definitely be a painful experience. We’ll see. My guess is interested firms are going to say, ‘Let’s talk again in 6 months.’ Because the market is trending their way right now.
Exactly…which is why I put the over / under at 15 months. Right now, there is limited interest or benefit to private equity taking over. 15 months from now, it could be a very different story.
Zwift is the best positioned of all the cycling related fitness companies - it is going to smoothly transition from the home fitness wave to the metaverse wave.
Zwift’s future is in billboards and Watopia real estate 
It’s a melting ice cube. Just wait two yrs and buy it through the converts.
Can you be more specific?
Private Equity typically has a play in industries without significant growth where operational efficiencies can be gained via debt leverage and cash controls (otherwise it’s just a BoD/mgmt issue). It is seldom (at least as far as I have seen) in growth industries (e.g. Apple would have been taken private in the early 90s if this was the case).
I think your market comment circles back to @mcneese.chad question earlier:
Most certainly there have been folks that predicted the end of the work-from-home phase with perhaps the most notable being Jamie Dimon (CEO of JP Morgan Chase) who went so far as mandating 5 days a week in the office. I’m not sure if he still is doing that, but most certainly, the entire tech sector is not and is close to long term work from home policies And the real estate industry - both commercial and residential - is in a boom as a result (reconfiguring offices and homes). All of this leads to demand for in-home fitness experience (of many forms), as many have been previously noted.
So given your P.E. experience, I’d be curious to understand specifically what market forces (i.e. not Peloton operational execution issues) you see moving to favor a P.E. play over the 15 month period that @Power13 mentions?
I mean multiples are contracting. Liquidity is still available but that could change over the next 12mo.
For me, the best situation for PTON & I to partner would be after their inventory issues are well on the way to being resolved & they have taken some steps to trim up OpEx. I’m not interested in companies where the issues are existential. There are many firms that are super good at that sort of thing but this is not our expertise. I’m not a head chopper.
Let’s say in a year PTON has reached cruising altitude, multiples have contracted, liquidity is a little hard to come by. Ok. Let’s talk. PTON, maybe we can provide capital at a cost you may find attractive. Guess what? We have a lot of contacts and maybe there are a couple opportunities that can really help drive your top line (this was the case with Foxx and Camelbak).
I think it’s definitely because you’re in the UK. In the US, you frequently see their trucks making deliveries in the major cities. I retired last year, but worked in tech for an energy company. I’d guess at least 10% of my business users owned one. Also, as soon as you get out of the city centers, we tend to have very big homes in the US, so we have lots of room for toys.
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And even then it’s not a traditional PE strategy, you can’t lever this business notwithstanding its FCF and your exit is very unclear.
Ok, I understand the scenario you are painting. Thanks for clarifying.
I think multiples continuing to contract is quite realistic, but I don’t see the need for capital being the driving issue, or at least the scenario where they would turn to P.E. for it.
The dynamics of the market environment and Peloton’s scale is at a whole different level than the companies you mention (from what I know of them). Peloton’s soft assets - video library, instructor notoriety (under the Peloton brand), and consumer loyalty - are enormous, allow for substantial gross margins, and highly dependent on domain knowledge of the management team to maintain and grow them.
IMO, Peloton has a tactical operational challenge (e.g. inventory, OPEX). But equally, if not greater, are numerous strategic questions they need to answer (e.g. do they remain upscale?, do they head mainstream?, do they continue to expand their product offering into rowers?, as just a few examples) Each of these strategic questions are inextricably intertwined with operational issues as well and vice versa.
Bottom line: I think Peloton is well out of the scope of the P.E. community over the foreseeable future.
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Hmmmm…I wonder what kind of user loyalty they have re: trainers. If Nordictrack started picking off their best / most popular trainers, I wonder what kind of churn they would see.
Probably not a lot due to the huge transfer costs (another bike would be required), but it could prove to be an interesting strategy for their competitors if they could structure it right.
In most tech companies, employee retention is at the top of the list of concerns when companies hit major “road bumps” [generally of smaller magnitude, though; FWIW: this was one of the first things I thought of when PTON stock nose dived]. In Peloton’s case, while this is likely also true, trainers are perhaps of equal if not greater concern.
Part of whether there is an issue depends on the trainer compensation package (e.g. all cash based or some equity; I have no insight). However, [and I’m just hypothesizing here] the trainer issue may be of less concern as a trainer’s value depends on their exposure and while PTON stock has tanked, as @dcrainmaker described, subscriber #s and ride #s have not and are well above any #2 (i.e. it would take a rich comp package to lure the best away).
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Two of their highly popular former instructors have gone to the competition, but there must be some kind of non-compete clause because it was long after they had left Peloton, and by then, people had moved on and found a new favorite. I don’t see this as an issue and don’t know anyone who changed platforms just to chase Steven or JJ.
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Probably so. PTON has a very low WACC right now! Ha! How much cash do they have on the balance sheet? Like, 2 billion? And IIRC their revolver is completely undrawn.
Our hit rate is a fraction of a percent. We’re going to do business that is right for us & PTON is going to do what is right for PTON. If those two things intersect we’re going to have a great interaction. If not, no hard feelings.
But I was thinking about PTON just as an equity investment in my own account.
Given your background, whether to invest in PTON or not is probably right up your alley. While the strategic questions I raise (and more) are all relevant, the investment analysis is largely driven by the #s and your own belief about market size, competition and Peloton’s ability to execute in such a market. Lots to go through to the extent you are interested.
Ptons stock is getting smashed and has been since Sept now. Might be under $10 pretty soon
Market is down, but PTON is up a few bucks today ($8.8B mkt cap). I’m not sure, but it might be finding a floor and those that see it as interesting opportunity might be jumping in. As I said earlier, we will know a lot more on the 8th and then can see how the market reacts. At this point, its just speculation.
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