We’re removing PTON from the Long Bias list. Our conviction has been waning in recent quarters particularly around the Trend setup, and took the name last quarter near the bottom of the list, but in hindsight we should have punted it entirely while doing the research on the real TAIL opportunity. The company reported a weak first fiscal quarter and had to significantly revise down expectations for the year. The number that gave us pause last quarter was the Q/Q drop in digital subs. It confused us why that would be the case with such a big growth runway ahead in the consensus view, but the company guided strong revenue numbers with an implied acceleration. Now just a couple months later, those revenue expectations have been proven to be way too high and the company has a demand issue citing falling traffic trends in its ecommerce platform even as it cut the price of its core bike product. Maybe this is near-term reversion effects of consumers trying to get away from the Covid norms, but it’s a big risk for the growth story and a major misstep on company forecasting.
From here with the magnitude of investment and negative EBITDA trends, there is no valuation support. The company is burning cash, and though it doesn’t expect the need to raise any capital, it's very possible that its assumptions could prove to be wrong again. Given the absence of any valuation support, there’s no reason why PTON can’t go down another 30%.
There could still be a long term TAIL Bull case here, as the company is innovating in a large consumer market, but the demand issues bring into question the size of the addressable market opportunity. Mid-covid the TAM seemed almost limitless, now it seems it might be only modestly larger than before the pandemic, when we struggled to see the opportunity. We’ll have to do more research to assess how much it has changed. So we’re taking this off the list and reassessing the TREND and more importantly the TAIL call.
