David Enhorn promotes Peloton at the Robinhood Investor Conference.
Getty Images (left) | CNBC (right)
According to David Einhorn of Greenlight Capital Peloton According to CNBC, if the company cuts costs, the company could trade as high as $31.50 per share, which could be double its current adjusted EBITDA forecast.
That’s about five times its current share price, which was trading around $6.20 at noon Friday.
In a speech Einhorn gave at the Robinhood Investor Conference on Wednesday, Einhorn rode a Peloton bike and explained the company’s many missteps over the years and how it must turn around its business, according to a copy of the presentation. wide runway.
Einhorn said that if Peloton can generate $450 million in EBITDA, roughly double current projections, Peloton stock could trade between $7.50 and $31.50 based on benchmarking research on comparable companies.
Notably, Greenlight’s analysis does not assume “any growth in subscription revenue or price increases from new customers or other new initiatives, such as activation fees from the growing used bike market and international expansion,” Einhorn said .
“Facing bankruptcy may force change,” he said in the pitch. “Peloton has begun right-sizing and stopped burning cash. It has refinanced debt to push out maturities. And with a loyal customer base paying $44 a month, it’s a valuable subscription business.”
Einhorn structured his speech as if he were a trainer in a fitness class, occasionally shouting for investors across the room. The first page of the deck is titled “15-Minute ‘Stock Pitch Ride,'” and shows a picture of Einhorn riding a Peloton bike.
“Let’s start with some shout-outs,” Einhorn said at the beginning of his speech, calling out some investors and sponsors, similar to how a Peloton instructor would call out a classmate.
Each page of the platform shows rankings of other apparent riders, including investor Bill Ackman and Robin Hood CEO Richard Buery, as well as Einhorn’s speed, cadence and resistance, mimicking what users would do while taking a Peloton bike class. See the situation.
Greenlight and Peloton declined to comment to CNBC.
Greenlight, which held a $6.8 million stake in the company as of June 30, conducted a benchmark study to analyze Peloton’s cost structure. The company compared Peloton to three groups of peer companies: fitness companies, e.g. planet fitnessconsumer subscription companies like Chewyas well as consumer online subscription services, such as Spotify and Netflix.
The study found that although Peloton has cut costs to curb cash burn, Einhorn said in the speech that “adjusted EBITDA is essentially zero compared with the peer median of $406 million.”
“For peers, more than a third of gross profit goes to EBITDA. Part of the problem is that Peloton spends too much on research and development,” Einhorn said. “For example, Peloton spends about twice as much on R&D as other companies. adidas Expenses…in U.S. dollars. Adidas’s sales are 8 times that of Peloton, and its product line is an order of magnitude larger.
Peloton’s stock-based compensation expense for fiscal 2024 is $305 million It’s also twice the size of its industry median, Einhorn said, and is comparable to much larger companies like Spotify and Netflix, which are 30 times and 140 times larger, respectively.
At the heart of the thesis is Peloton’s high-margin subscription business, which generated $1.71 billion in revenue in fiscal 2024 and had a gross margin of about 68%. If Peloton can significantly cut costs, the company can generate more free cash flow and EBITDA without having to sell more bikes and treadmills or expand its user base.
Earlier this year, Peloton announced plans to cut 15% of its workforce, close retail showrooms, adjust international sales plans and other cost-saving measures. These cuts are expected to reduce annual operating expenses by more than $200 million by the end of fiscal 2025.
In August, Peloton said it expected adjusted EBITDA to reach $200 million to $250 million in fiscal 2025. Looking at the current subscription revenue base.
He said companies generating EBITDA in that range tend to trade at 9 to 32 times that amount, meaning if Peloton’s EBITDA hit $450 million, its potential share price would be between $7.50 on the low end and $31.50 on the high end.
To achieve that goal, Einhorn said, the company needs new management. In August, Peloton’s interim co-chief executive Karen Boone said she believed new executives would be in place when the company next reports earnings, which is currently scheduled for Thursday.
“The beauty of our paper is that we didn’t have to convince Peloton that this was the right approach,” Einhorn said. “Peloton’s interim co-CEO told the same story about a recurring, high-margin subscription revenue stream business. They also implemented an initial cost-cutting plan that still leaves plenty of room for a new CEO.
He said the company continues to receive rave reviews from consumer and fitness publications and has an extremely loyal customer base. He added that while fitness enthusiasts are returning to the gym, home exercise is here to stay.
“Exercising in the comfort of your own home is not a fad,” Einhorn said. “Over time, healthy lifestyle trends should drive potential user growth.”
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