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Ben's avatar
How Are the stay at home stocks doing post pandemic?
For me the stay at home stocks are $ZM $PTON $TDOC $DOCU $NFLX. Of course you could include others in this category. But these to me exploded in 2020 and their bull case in 2020 could have been "this will be a winner bc we will never do xxxx in person again." Whether that's work in an office, go to a movie theatre or go to a doctor. Some of these have better bull thesis than others. I hold a few. I want to do a 5 part write up to see which remain attractive from an investment stand point today IMO. All 5 stocks are down or flat since pre-pandemic but most of that is market conditions and multiple contractions. I want to know is the business better now after a black swan event.

I want to start with $PTON

revenue: 915 mil.
-10% op margin.
op cash flow neg 108 mil and FCF -190 mil
From 2019 had 3 years of 100ish% revenue growth followed by 10% yoy rev contraction 2022 then 20% yoy rev contraction 2023 (note: TTM revenue contraction factors in estimated q3 2023 PTON revenue estimate to estimate fiscal year 2023 contraction)

TTM 2.8 bil revenue
-36% op income and this is despite shifting 15% of expenses to SBC this past year as opposed to 9% dilution in 2019.
op cash flow was -674 mil TTM and this was made better by adding back SBC 420 mil, 459 mil in restructuring cost, and 320 mil in other activities. add another 133 mil in capex and you burned 807 mil TTM FCF
There may also be some shenanigans in deferring expenses in accounts payable. in 2022 PTON had 93 mil in accounts payable. In TTM this number ballooned to 502 mil.
With only 873 mil in cash remaining. This can support paying what is due to vendors and 2 months of cash burn (or burning cash for 4 quarters and not paying vendors) without raising more debt, at high interest rates, or selling more equity which they did in 2021 at saying a few quarters prior they weren't going to do.

Reported 3.033 mil subs. 10% yoy increase.
product revenue 381 mil (52% yoy decline) with gross margin of -11%
subscription revenue 411 mil (22% increase yoy) with gross margin of +67% by adding subs and raising prices.

Cycling makes up over 50% of the workouts on Peloton, making it the most popular type of activity among connected fitness subscribers. Strength is the second most popular fitness category, accounting for 18%, and it is followed by floor (11%), Yoga (8%), running (8%), and outdoor (2%).

Trying to get to a bull case and TAM
With 3.033 mil subs paying $49/ month we get 1.78 bil in revenue. With a great 67% gross margin.
60% of all subs are using the bike or the treadmill. So let's give them 300k new users that bought 750 mil in bikes. And we get 2.5 bil in revenue. Which is another double digit revenue decline: 10% yoy decline in 2024. Total loss of 37% revenue in 3 years.

The next bull argument is PTON is going to take over gyms bc its cheaper. But most people (50% biking and 8% running) need the hardware to get their desired use out of the product. So for 58% its not only $50 a month compared to in person gyms charging $200+. Note some gyms charge as low as $10 dollars a month. For these users is a 2500 bike or 3200 treadmill are needed. Since a lot of these products are BNPL. The "real" monthly cost to be a user is $119 (avg monthly BNPL cost over 2 years) and $49 monthly subscription. This is $167 per month much more in line with the cost of an in person gym.

The rest of the people who use then PTON pay a smaller fee to have access to some work out videos via the app. Whether you want to strength train (18%) or do yoga (8%) this is the remaining 42% of users at the lower fee. Managements big shift to being fitness as a service. The PROBLEM with this is competition. Not only competition from in person gyms, some people like to be social and work out with others. This IMO is the reason for PTON 50+% yoy decline in product sales.

PTON also has competition from other video platforms and apps. Mainly free ad supported competition from Youtube. But iOS reports 24,00 fitness apps, led in revenue by Myfitnesspal, Strava, Fitbit, Sweat, AllTrails, Muscle Booster etc. You could pay PTON $12.99 a month or you can watch ad supported Youtube videos for free to show you a work out. Or you could pay one of hundreds of other work out apps.

Currently only 14% of US citizens exercise. So PTON management could say "if only 10% of these users become PTON users we'll make a great investment!" But that tailwind passed. The majority of the new people who where going to sign up, signed up over the last 3 years. PTON grew from 360 thousand to 3 mil subs. I don't see another 10x in subs happening anytime soon.

My take: too risky. burning cash. debt risk. I see PTON more like Blue Apron than ABNB. Its fun. Has an audience. But its expenses are too high for what they are trying to do. Its not going away. But an good investments needs growth or cash flow. PTON is not growing and has burned more cash than Heath Ledger's Joker. It can't just flip a switch and have flat growth and throw off cash for a dividend. IMO more likely to be down another 50% then 10x.

Joey Hirendernath's avatar
Joey Hirendernath
You hit the nail on the head -" The PROBLEM with this is competition. Not only competition from in-person gyms, some people like to be social and work out with others. This IMO is the reason for PTON's 50+% yoy decline in product sales."

Speaking as someone who has tried a lot of different fitness offerings the competition in connected fitness is like a piranha tank. I often find it easy to switch from one subscription to another quite easily. I am staying clear of PTON there is no resurrection story... only one that is going downhill.
James's avatar
Agreed---as a user of Peleton, I love it, but they need to prove that this new model can drive user growth before I'd buy the company. I could make a bull argument that their service is curated, high quality and that will drive user growth at a lower price point, but it is hard to argue that YouTube isn't just as good.
Joshua Simka's avatar
Joshua Simka
Where did you get the 14% of US citizens exercise from? That's so shocking, but I believe it... I like your thoughts on $PTON and looking forward to the other 4 parts of your series. Great idea!
Ben's avatar
@tomato something I remember reading in a medical journal
Ben's avatar
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