Peloton stock has been going down for a while now, and I feel like it’s finally time to get in on the position. I’ve followed them for months, and I’ve been waiting for a moment like just this. Now, they’re down by over 30%, and I’m not going to let this opportunity pass by.
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Hello everyone here, and welcome back to Investing with Antoaneta. Today’s blog might be a bit controversial since Peloton is getting a lot of flak lately, but I’ve got a solid reason to believe in them. Besides, a lot of the negativity is not really genuine.
However, I want to give you guys a quick warning here: Peloton (PTON) stock is volatile. And I’m talking about big-time volatility. For the last two months, it went down by over 30% (and last week by 17 percent in just a couple of days).
I decided to get into it because I’ve done a lot of reading about them and their business model. I like the management, and I like the fundamentals. And I’m used to the general volatility of the market. But if you don’t feel comfortable with the price jumping up and down, then it might not be the stock for you.
I also know that Peloton is not exactly popular in most investing communities. Personally, I believe that by ignoring Peloton, they are missing out on some massive potential returns. Oh, and by the way, the analysts are with me on this one. I usually don’t like talking about what the analysts think, but I think they might be onto something here this time.
So, here are the main pros of Peloton:
- They’re a high-growth company.
- They’ve got a great subscription-based model with a ton of potential!
- They’ve got really a strong brand.
- They’ve got a great CEO (very ambitious & motivated).
- They’ve got decent numbers.
Here’s what you need to know about Peloton
The business model
We’re going to start off with what is, in my opinion, the strongest point of Peloton – their business model. That’s something that a lot of people seem to misunderstand.
And, if I’ve got to be honest, I can’t really blame them because it is a bit confusing. When most investors look at this company, they immediately assume that it’s competing with the regular gyms. After all, Peloton sells workout equipment that you can use at home, right? So, if you buy their products, it means you don’t have to go to the gym to get your workout.
Makes sense, right? Well, yes. But also, no.
Peloton has a lot more to offer!
Buying the equipment is just the first step (since also you need to know how to use it, and you need to stick to a routine). And, in case you’ve never looked into this kind of stuff, let me tell you that these don’t come cheap, especially if you’re looking for high-quality ones that bring results. The fitness market is sort of over-saturated with all kinds of gurus and trainers and whatnot, and the good services are both hard to find and pretty expensive.
And, on top of that, they’ve got their standalone mobile App (which obviously comes with an affordable monthly sub fee) that offers access to various training and classes. The big punchline here is that you don’t need to purchase any of their physical products (bike, treadmill, etc.) to benefit from the app. It’s got a ton of tips and information about stretching and yoga programs that anyone can enjoy from the privacy of their own home.
So, if we take a step back and look at their model as a whole, they’re really one step ahead of most companies in the field. The big plus obviously comes from the fact that they’re giving the clients the whole package.
They sell you the equipment, the instructions, the program, and the training.
Again – that’s a big part of why so many people today just can’t be bothered with fitness, gyms, and whatnot. Getting your hands on good equipment, a good program, and then having to worry about finding trainers and stuff takes a lot of time and effort. And, of course, there’s no guarantee that it works out for you or that you stick with it.
From the customer’s perspective, Peloton is cheaper, more accessible, and much more flexible than gym memberships.
Peloton’s business model allows people to skip all of the annoying steps and jump right into what they were looking for – getting their results.
And, if we look at their reports, they only confirm this. The subscription (digital) part of their business is growing much faster than the physical equipment department. And the subscription stuff barely costs anything to produce and maintain in comparison to the bikes and treadmills.
The Recent Events
Feb 04 – Peloton’s Second Quarter FY 2021 Report came out.
And, truth be told, the report was quite favorable. They showed some pretty good numbers and managed to beat the expectations.
- Revenue went up by 128% year-over-year (1.06 billion dollars, beat by $30 million)
- Q2 Net Income: $63.6 million, $0.18 per diluted share;
- Total Members grew to over 4.4 million.
- Fitness Subscriptions went up by 134% (to about 1.7 mils)
- Digital Subscriptions went up by 472% (to about 625 000 vs 561 000 expectations)
- Q2 12-month retention rate: 92%
The demand issue
One of Peloton’s major issues right now is its inability to meet the demand. People just can’t get enough of them. So, to fix that, management came out and stated that they’ll be investing $100 million into delivery logistics.
On Feb 09, Peloton also raised $875 million through a 0% convertible debt offering.
Okay, so… where is this bad, exactly? They beat predictions, upped their revenue by over 100%, and scored an excellent retention rate. On top of all that, their customers want more of what they’re selling.
Well, the bears managed to spin the investment move in a negative way. All over the place, you hear statements like: “They’ve wasted a ton of money on stuff they didn’t need to do”, “They’ll have to raise more capital now”, and so on.
So, we arrive at our 30% drop & big sell-off.
But is this the end of Peloton?
I don’t think so. Like I’ve been telling the guys over in our private investing group, people are sleeping on this stock big time. There is massive potential down the line, and all of the bearish naysayers managed to steer a ton of investors away from the company. But hey, that’s just how things work in the Stock Market. With time, you learn to pick up on the real intentions behind what people say and do. And no, I’m not really a fan of this either, but I can’t do much to change it except sharing my thoughts with my audience.
I started following the company back in, and as soon as I realized the massive potential here, I shared it in our Private Investing Group.
So, yeah, I definitely believe that Peloton is a buy now, and I’m actively adding more and more Peloton stock to my portfolio (in increments, of course).
But, Antoaneta, they only grew so much because of the lockdowns. Once people can start going back to their regular gyms, the service will die out.”
You also see this sort of talk about pretty much every company that managed to grow during the period. Sure, the growth might slow down, but it’s not like they’re “doomed” or anything.
First of all, people don’t like changing their habits frequently. If they’ve already gotten used to Peloton, a lot of them will stick with the service. Besides, as I already pointed out, the app and the online lessons are cheaper and more convenient than going to the gym.
Additionally, Peloton is not in direct competition with the gyms. Peloton offers cardio equipment, mobility and flexibility classes. A decent portion of the people who buy gym memberships (and turn into regular clients of said gyms) actually want to lift weights or do bodybuilding stuff.
service is aimed at the “casual” gym-goer – the type of people who usually struggle the most with their consistency in the gym. For them, Peloton is just a cheaper and more accessible alternative that they can enjoy at any time (you don’t actually have to “tune in” at specific times to use the app).
I believe that Peloton is a buy, and I’m gradually adding more and more of their stock to my portfolio. I actually think that they’re really underpriced right now. I see a lot of growth potential for them in the future. I don’t see them as “direct competitors” to the conventional gyms (at least as far as the average gym-goer is concerned).
If you want to get more content like this, but before everyone else on YouTube or the investing forums hears about it, then our Private Investing Group is the place to be. Exclusive content, discussions, live-chat, we’ve got it all! For more information, check out the link in the description below.
And that’s about all I’ve got for you today. I hope you enjoyed this blog, and if you did, don’t forget to let me know by liking and sharing it with your friends.
Thank you all for reading and until next time.
Recommended books for further reading:
- The Warren Buffett Way
- How to Day Trade for a Living: A Beginner’s Guide to Trading Tools and Tactics, Money Management, Discipline and Trading Psychology
- A Beginner’s Guide to the Stock Market: Everything You Need to Start Making Money Today
- How to Make Money in Stocks: A Winning System In Good Times And Bad
- Warren Buffett and the Interpretation of Financial Statements: The Search for the Company with a Durable Competitive Advantage