I’m going to beg to differ. At a $5B market cap, a company could take them over at $6 to $7B easily. An offer in this range would have to be presented to the shareholders - fiduciary obligation of the board, and I can’t see the shareholders voting against an instant 20 to 40% premium to the current market price
That’s not how it works . . . at least not for a publicly held corporation of the size of Peloton including the many shareholders it has. Approval by shareholders comes significantly later. The board does indeed have a fiduciary obligation to the shareholders, but there are many steps prior, only a portion of which determining whether the 20-40% premium you suggest is acceptable to shareholders. If you want a current visible example, take a look at Twitter: there has been no consultation with shareholders as to Musk’s offering price nor the validity of the offer to shareholders.
It’s just my opinion, of course, but with the extreme volatility of PTON and Peloton’s industry leading customer base and global name recognition, it seems likely that Peloton’s corporate counsel would advise the board that it is power to reject such an offer. BTW: More likely, is that they would negotiate with the buyer and perhaps even seek other offers. But again, at $5B+, the field of likely suitors isn’t large.
We agree that the field of acquirers isn’t large. And yes, the board could and should try and negotiate an offer higher, but a blanket No from the board would open them up to a shareholder lawsuit
It’s not a blanket “No”; and it would be unlikely that the shareholders would ever know about such offers, unless it becomes a public matter, such as in hostile takeover bids where the acquirer wants the public’s pressure including in Elon Musk’s first approach on Twitter. It’s also highly likely that Peloton has already been some discussions with potential suitors whose offers were rejected where the public will never know.
oh how the mighty have fallen… I know people got rich off PTON at the highest stock price for really no reason but it just goes to show you that at some point it will always come down and in this case never really going back up to where it was.
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I’m curious…
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Do you think your profit was actually made based on your original belief (i.e. that the market did not understand the value Peloton was bringing to the market) or on the unique circumstances around the pandemic? Perhaps it was a mix of both?
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Given the current share price do you still believe that the market does not understand the value Peloton is bringing to the market? If so, are you doubling down once again? If not, what has changed? Did the poor strategic/financial decisions made by Peloton during the pandemic fundamentally alter their value proposition? Did competitors catch up?
Lots of great questions. I’ll get to them over the next couple of days (tied up at the moment).
- Mixture of both. Great companies (team, product, plans) that align with customer needs (i.e. value proposition) will do well in most market environments And Peloton put up the #s in terms of subscriber growth, workouts and revenue every quarter even for the 5+ years prior to the pandemic to demonstrate as such.
What the pandemic did was accelerate the business of such companies that were well positioned to leverage [as you say] the unique characteristics of the pandemic. Peloton was not alone - Zoom, DocuSign, Instacart, DoorDash, and many others benefitted similarly. [remember: my decision to invest and then double down was months prior to the start of the pandemic].
- “The market” understands Peloton well (and more specifically, the large institutional buyers). However, as behavioral buying/selling has a large influence on stock price of such a well known company, Peloton has been mercilessly beaten up with investors currently appearing to be taking a “wait and see” approach as to whether Peloton can clean up the financial mess it is in and be right sized for the current market dynamics.
Regarding strategic decisions made during the pandemic: I remember recalling how brilliant I thought each were (e.g. buying one of their suppliers, purchasing True and turning it into a U.S. mfg plant, etc). However, I didn’t have any insight into the level of risk they were taking (you’d literally need to be on the exec team and attend board meetings to hear the analysis and debate). Of course, it is easy now to play “Monday morning quarterback” and criticize (it’s similar to what takes place in the U.S. regarding Fed Chairman’s Powell decision on interest rate hikes).
Regarding competition: There’s certainly more than there was back in 2020. But none are close to catching up. And Peloton continues to defended its intellectual property, including winning the battle on its leader board. So I believe competition is an important factor, but not the key one, at least at the current time.
As for me, I remain bullish on their business prospects based on the growth in #s that count, and particularly subscriber #s. Also, their brand name recognition remains phenomenal. However, I would not say that I have unique understanding of this (institutional investors understand this well). And I also don’t know what it will take to move the needle for them. As such, I am currently remaining on a sidelines.
Full Disclosure: My wife has owned a Peloton bike since Feb '2017, uses it almost every day and loves it. Her situation reminded me of Peter Lynch (Fidelity Magellan Fund) decision in the late '70s to invest in a company called “TJ Maxx” (clothes) that was the first to do a massive overhaul of their woman’s clothing line as women went back to work. He made the decision by going to the shopping malls and seeing the long lines at TJ Maxx and not at other clothes stores. To me, Peloton was TJ Maxx 40 years later hence my 1st investment.
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Again, this is where I have to disagree…anyone who has followed the fitness industry, and truly understood that ultimately, that Peloton was a indeed a fitness company) could have seen what was coming. The bike industry did and opted not to over-invest in new acquisitions / infrastructure. Hell, even I knew it and limited how many thermometers we brought in because we correctly projected a massive wave of product coming in just as COVID started to wane a bit in late 2020. (admittedly, we were probably a bit too conservative and missed some short-term opportunity, but we are much better positioned post-COVID surge than most companies).
No disagreement.
Not sure what this point is. Foreseen in 2019 a 2020 pandemic?
What Peloton saw that was unique [not mentioned in your commentary] is the opportunity to bring a high quality level of experience to indoor cycling. This had never been done before. The only company that one could arguably (with numbers) say that has since done so (albeit to a smaller degree) is Zwift.
This is Monday morning quarterbacking. Try to name a company, where you have the publicly available #s to back it up (revenues, customers, retention rate, etc) that match Peloton’s growth both pre-pandemic and post pandemic. Generally saying that the bicycle industry didn’t over invest does not make Peloton’s decision to invest wrong (at least by my judgement). I might have a different viewpoint if I were privy to the analysis and discussion I mention above.
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No…foreseen that the COVID sales surge was a bubble and was going to burst. It was inevitable. It didn’t take great business acumen to see it.
I have given Peloton full credit for seeing this market opportunity…but it really wasn’t as earth-shattering an insight as you seem to think it is. It amounted to “What if we just let people do their spin classes at home, increasing convenience and removing obstacles such as perceived public embarrassment?” What they did was capitalize on it with an outstanding user experience.
No, it isn’t…plenty of people made the correct business call at the time.
I’m also not sure I believe the bike industry chose not to invest further due to a realization that the pandemic would end and life would go back to pre-pandemic patterns. It seemed to me much more like they could not invest more because the manufacturing wasn’t available. I mean, I’ve had a SRAM cassette on back order since last year. That’s not because SRAM decided to play it safe, it’s because they can’t get the product out to consumers fast enough. I had bike shops telling me they had no idea when new bikes would be available and that I should buy whatever I could get my hands on. Certainly this wasn’t the bike companies deciding they were willing to forego that sale. They just couldn’t get the bikes built fast enough.
As a Peloton user. I was not able to talk the wife into a trainer. I use a DFC device I learned about from DC Rainmaker. It allows me to broadcast power, cadence from Peloton to TR. Is it perfect no, but my fit is very close to my MTB fit. I blend MTB and Peloton/TR for fitness gains. I have dusted of my road bike and might do more rides. Road riding causes me fear. Too many people I know have be hurt by cars not sharing the road.
To the point of Peloton IPO. I personally don’t thing that the at home fitness classes like Peloton and iFit and others will continue to grow. The equipment is too costly to build and make profits on. It would seem better to allow others to join Peloton experience by allowing users of smart trainers to join the interactive classes and have their power and stats be part of the leader board.
The effects of Delta and later Omicrom were not fully known. But more importantly, without being on the exec team we don’t know what their thinking was wrt international expansion, market expansion, product expansion, etc and thus the full basis of their investment decisions
Yeh, “beauty is in the eye of the beholder”
Yes, and plenty of people made a similar assessment of inflation in Dec '21 and thus concluded that the Fed should have raised rates then and slammed on the brakes re: bond purchases. But none of these outsiders have the full set of info and data that the Federal Reserve Board has to make such decisions.
BTW: I am presuming by your commentary that you foresaw all of this and the impact to Peloton. So, did you take a short position and capitalize on it?
I think it was the Nerd Alert podcast where they interviewed someone from SRAM and the he pretty much said they did not invest in additional infrastructure vs. just adding additional shifts, etc. because they felt that the sales surge was a bubble and not a boom.
I think what everyone did get wrong was that it lasted longer than anticipated…but if you go back to the early days of the pandemic, nearly everyone thought the virus would die out come the summer and warm weather.
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For the most part, the bicycle manufacturers, particularly the smaller ones, are integrators. There are huge interdependencies, so supply of one component (e.g. cassette) can bring sales to a halt. Peloton seems to have a much higher level of vertical integration than the bike industry as a whole giving them greater control over manufacturing volume. The issue they are dealing with, of course, is excess volume.
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You know what, I do think I remember that too.
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Nope…I am an extremely conservative investor and never bought PTON because as I said at the very beginning of this thread and multiple times in it, I do not believe it was a good candidate for public ownership. Pretty sure I have been shown correct in that sense…IDid I miss out on the rocket ride? Yup…and I’m OK with that.
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Yes. And another factor is that much of the bike industry is not well capitalized and thus can not take the investment risks that a company like Peloton [thought it] could, at least at that scale.
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Hmmmm…not certain about that. The Big Boys are pretty well-funded. And by that, I mean the factories, Shimano, etc.