PTON Bull/Bear Discussion

Publicly traded companies mentioned herein: Jefferies Financial Group Inc (JEF), Peloton Interactive Inc (PTON)

Highlights

On October 12, 2021, DeMatteo Research hosted a bull/bear discussion on Peloton Interactive Inc (PTON). The group shared a wide range of opinions on the outlook for subscriber growth, churn, the impact of bike price cuts, the significance of recent third-party data, and the importance of hardware margins. One of the bears expects PTON to miss on lofty Q2 targets based on early Tread data. Yet, the other bears and bulls consider Q2 performance more in line with expectations and deem Q2 results less important to their position in the stock than the company’s actions to drive medium- and long-term TAM and subscriptions. These bears differed from the bulls in highlighting structurally lower margins than expected, potential churn headwinds, and deceleration in both subscribers and revenues. There were also dynamics that the group agreed on, such as subscriptions driving the long-term value of the stock and YipitData being the best third-party data source despite some sample size issues.

Tread & Tread+

PTON has experienced complications with its new product rollouts, such as the Tread+ recall and the Tread delay. These products have entered/re-entered the market more recently, and the bearish participants point to weak third-party sales data and lower gross margins than expected. There are also concerns about management’s comment from the August Q4’21 Earnings Call that 50% of Tread sales are coming from existing Connected Fitness households (i.e., those that already own a bike) and therefore will not generate new subscribers. One bear was long PTON until early this year, exited the position due to some execution issues, and went short this summer because his bull case had been predicated on Tread expanding the TAM and thus, the subscriber base. 

In contrast, the bullish participants do not consider the 50% overlap commentary worrisome. Two bulls expect that relationship to continue and believe this will keep churn down and increase engagement. This is because if existing bike owners buy Treads, they will only have to pay one $39 per month subscription for Connected Fitness access on both devices. This dynamic also extends to potential future products; bike owners that want to buy rowers may be incentivized to wait to see if PTON comes out with a rower instead of buying another company’s product to avoid paying for two subscriptions. Another bull notes that the 50% overlap figure makes sense in the short term given existing customers’ willingness to try the Tread, but he doesn’t view 50% as realistic over the long term since the Tread market is ~3x larger than the bike market. He also cautions investors to be patient regarding Tread sales, stating that the marketing efforts are just now beginning.