Peloton (PTON) Quick Value

The much-hyped Peloton ($PTON) celebrates its first day as a public company today. “The P90X for spinning” (was not found in the recently filed S-1 registration statement).

Let’s take a look to see if there is any value here.

At an offering price of $29/sh, $PTON raised approx $1.2bn from new investors. With 280m shares outstanding that puts it at an $8.2bn market cap with $1.3bn in cash and no debt = $6.9bn enterprise value.

Revenue in their 2019 fiscal year (ending June 30) was $915m giving this a 7.5x ev/revenue multiple. A lofty price point relative to other “comparable” companies (if there are any). I guess it may not be that outrageous with Planet Fitness ($PLNT) trading at 10x ev/revenue. In fact, 7.5x sales seems like a downright bargain for $PTON when you consider the 105% growth rate over the past 3 years when $PLNT has been growing at “only” 23% per year (from 2016-2018).

A few things that $PLNT has going for it though: 1) profitability; and 2) better overall gross margins (>50% compared to $PTON in the low-40% range). Even the now-private Lifetime Fitness had superior gross margins to $PTON while it was still public.

This business can’t be viewed or valued on any earnings or cash flow metric. There are no earnings and no operating cash flow to speak of as the company has been plowing cash into inventory for resale and selling / marketing expenses.

At the end of the day, Peloton looks more like an equipment dealer with a small(er) subscription offering to boot. Subscription revenue was $181m in 2019, just shy of 20% of total sales. This sounds more like Nautilus ($NLS), the owner of Schwinn and Bowflex brands. $NLS has been struggling with sales declines and has traded at 1.2x ev/revenue over the past 5 years. Gross margins for that business had also consistently been north of 50%…

Hopefully for investors’ sake it doesn’t suffer the same reality. But who knows, the business model certainly seems more attractive than $PLNT with better growth and a lower valuation.