Peloton (NASDAQ:PTON) has been one of the more obvious winners of the pandemic environment, for equally obvious reasons. That has been something of a double-edged sword for investors though, as winners like Peloton and Zoom (NASDAQ:ZM) have fallen back to the pack since the initial COVID spikes.
Peloton’s case feels especially egregious for a couple reasons. First, the company gave annual guidance on their Q4 call in August, instead of giving guidance for just one quarter. PTON then had to walk that guidance back on their Q1 call, even as they hit their Q1 numbers, as normal seasonal patterns are not yet applying, at least. So management’s credibility takes a hit.
And then, the company’s business model has a lot further to go to maturity. While ZM is on a nearly $2B free cash flow run rate so far this fiscal year, Peloton guided to negative $425-$475M in adjusted EBITDA this year, suggesting even worse cash burn. Which may be where the other shoe dropped today with news of Peloton peloton to issue shares.
For all that, Peloton has a growing subscription business, and a popular brand. One doesn’t have to squint too hard to see a future where the subscription dollars more than cover the operating expenses, there’s even some pricing power in the bikes themselves, and the company is printing cash. It’s just that the road ahead seems full of potential potholes and ups and downs.
This week’s The Razor’s Edge is about Peloton and whether they can turn a corner. Akram’s Razor and I discuss Peloton’s quarter, the guidance challenges, whether the company could be a buy-out target, and what Peloton’s management could have done. We also talk about how Peloton’s problems typify the uncertain environment around us, and how this could hit current highflyers, whether they’re in semiconductors or travel or elsewhere.
To listen from the app, click into Apple or Spotify . To listen on the desktop, just click below.
Topics Covered
- 2:30 minute mark – Peloton’s earnings fiasco
- 8:30 – The business model and the bull case
- 15:00 – Did Peloton’s management set themselves up for a fall?
- 21:00 – The permanent changes vs. trends in the broader U.S. economy
- 27:30 – How to recover from lost credibility
- 35:00 – Where does upside come from
- 40:00 – How Peloton can stabilize/turn it around
- 48:00 – The narrative momentum
- 56:30 – Market dispersion
- 1:01:00 – Last call on Peloton, and comparison to Zoom
- 1:16:00 – The challenges exiting a pandemic and investing meanwhile