So much has happened with PTON over just 3 months. When we made the short call we said there was 50%+ downside (from $32) and we still think that is the case, though given the developments in the economy, the bear case is even lower than before. The stock is down over 30% from when we went short and down 33% from the point 3 weeks prior to the lockup expiration that was moved forward. On the lockup President William Lynch sold ~$1.3mm in stock and a big early PE investor Catterton sold its entire 5%+ stake.
Every week we are seeing more and more competitors pop up. A $10bn valuation for a money losing company will attract a lot of attention from companies looking for a slice of the pie. Just this week we got details of the offering from perhaps the biggest name in high-end fitness, Equinox/SoulCycle. We think the launch will mean real pressure on market share for PTON at the high end of connected fitness, which is where we think the real long term profit opportunities are in this market.
Meanwhile the stock market is signaling real recession risk with Covid-19 as the straw breaking the camel’s back. Despite some suggesting that an intensifying pandemic is somehow good for PTON, we think the economic consequences of the virus will significantly outweigh any ‘workout from home’ opportunity. If a recession comes, we expect sub growth and profits to decline well below where the market is expecting. With the market pull back and big declines in many of our short ideas, we see PTON as one of the best risk/reward shorts in retail today.
Changes to price and the thesis mean it’s time for a Black Book. We’ll be hosting a call Tomorrow, March 17th at 12:30pm. We just updated our consumer survey that will provide some new insights, better TAM assessment, and a rate of change view.
Topics of the call will include:
-New competitive threats
-Updated estimates of the addressable market
-Context around other fitness fads/trends and where Peloton might measure up
-Thoughts on the growth profile and profit opportunity of the digital only offering
-Cyclical risks
-Survey insights
-What we think PTON is worth today, in a recession, and at maturity
Call Details:
Date/Time: Tuesday March 17, 2020 12:30PM EDT
Toll Free:
Toll:
UK: 0
Confirmation Number: 13699937
Live Video Link: CLICK HERE
