Les Billets de Monocle

Peloton goes off the rails

31 August 2021

The more athletic among you have probably already heard of - or are even customers of - Peloton, a company launched in 2012 that offers connected exercise bikes that don't just allow you to take a simple online cycling class, but to live an immersive cardio experience " without leaving the comfort of your living room for the modest sum of $1,500 (which is a drop in price compared to the $1,900 it cost just a week ago).

It turns out that this company is one of the darling of the Nasdaq since its share price has been multiplied by 4 in 2020 with sales figures in full growth (+100% FY20 / FY19) - indeed what could be better than a virtual bike ride to bypass the repetitive daily life of lockdowns ?

However, there is a catch: the forecasts announced at the time of the publication of the results for the fourth quarter of 2021 (operating loss of $285M for the quarter ending September 30), on August 26, did not seem to satisfy the markets whose valuation levels cannot tolerate operational potholes.

Moreover, the sale of bicycles represents 60% of the turnover, the remaining 40% coming from monthly subscriptions: it is unlikely that customers who already have their Peloton bike will want to buy another one every 3 months. It will start to be relatively complicated to show spectacular growth rates assuming that a large part of the potential clientele is already acquired.

With losses expected to increase and a 20% price drop of its bikes (surprisingly, besides the confinement period, cyclists seem to prefer pedaling in the open air rather than between their coffee table and their TV dresser), last Friday's 9% price drop seems a small price to pay.

Still valued at nearly 8 times sales ($32 billion in capitalization) and with no profit in sight, Peloton could well make the S&P lose its footing.




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