$PTON: Puts on The Tread+

The short thesis on $PTON is pretty obvious, and I am not going to get into why people will stop using overpriced home exercise equipment. For best WSB post see: Put_1 For shitty WSB content see: Put_2 Put_3 Put_4.

All have resulted in loss porn so far, but this is clearly changing considering the recent price action on $PTON. It's an ugly chart, but I do not know how to use crayons so you won't get an analysis from me.

The fact of the matter is that people love their PTONs, and I am not going to dispute that. But, at the current EV of 28b, this company would have to be the most successful home exercise equipment company ever to justify its current price. There is no reason to point out the fact that most of the exercise bikes they sell are going to end up as coat racks and people will cancel their subscriptions (they will). That's too easy.

No, the short thesis here is the trend. The current market cap is pricing in expected growth in a covid world and has yet to price in the ending of the pandemic. The majority of the revenue $PTON brings in is from the sale of connected home exercise equipment. This number was $807m or 81% in Q2 FY 2021 (Oct-Dec 2020) and $601m or 79% in Q1 FY 2021. Subscription revenue, in which they currently have a high retention rate with churn under 1%, represents $195m (19%) and $157m (21%) in the same periods.

At 1.7 million connected fitness subscriptions at the end of 2020, subscription revenue is at $461/year for each subscriber. PTON 10-Q They are projecting ~2.3 million subscribers by the end of FY 2021 (through June 2021) which would be ~35% growth in subscriptions over the next two quarters. Adjusted EBITDA (nonsense) projection of $300m puts the current EBITDA/EV at ~100. Which all in all, would not be a terrible multiple for a company with projections such as theirs. However, my thesis is that they will not see the growth they project and will actually see decreased earnings growth.

The current projections are overly rosy and for a company like PTON who benefits greatly from stay at home, to project two quarters out is quite honestly very surprising. When those projections were made, it was not possible for them to know how the vaccine will turn out or how consumer behaviors will change once the pandemic and restrictions end. People want to go outside and out of their homes. I would be surprised if they saw the growth they laid out for investors. Furthermore, it would also be a surprise if they gave projections for FY 2022 because of the high level of uncertainty and high comps.

The majority of their revenue comes from selling exercise equipment. Given the pent-up demand for travel and actually living life, YoY growth in revenue will most likely be negative. Sitting in your basement, alone in front of a screen, pedaling away sweating your balls off is out. Going outside to see grass is in. Inflationary pressures INFLATION NATION, the extra money they have had to shell out for freight of bikes freight cost, and the decline of covid in the US leading to loosening restrictions/return to work (92% of revenue comes from the US, corona) will all weigh on margins and revenue growth. Dreams of profitability will be pushed further into the future and revenue growth will turn negative. There is a reason peloton ignored the CPSC who demonstrated that the tread eats children. They need that revenue, and they know the stock will take a turn on more bad news. Maybe there is a reason company execs are selling so many shares. link

Now I could be wrong, and a lot of my conclusions are highly speculative. I wanted to try to find a metric to measure how many people are getting new PTONs/signing up for peloton. Not easy, but I think one thing to look out for is the subreddit peloton cycle because it has tracked their growth over the last year. https://subredditstats.com/r/pelotoncycle

I want to point out comments in a daily thread they have called "New Buyer Daily Discussion" which started on Aug 09 2020. So all data provided starts from there. Feel free to check it out yourself and see how growth tracks with stonk price. I am not a professional regarding reddit subs. And i actually only use reddit for WSB and porn on the occasion, so I am not completely familiar with the importance of some of these charts. Feel free to chime in if I am representing something wrong.

Subscribers increased greatly - however, growth is starting to slow.

Comments per day are relatively flat and undergoing a consolidation similar to the stonk. Surprising, considering the subscriber growth. Me thinks trend is sideways but waiting for break to downside.

Not sure what this means. But trend is good, however, starting to go flat and in opposite direction.

Again, not exactly sure what this means, but the trend is clearly negative and did its best during New Year's Resolution times.

You can also go to the peloton website and find that their cheapest bike is no longer back-ordered. All in all, it adds up to fewer people buying pelotons. They are still an okay company, so how much should they be worth? Fuck if I know. But considering they operate in a highly competitive market, a p/s multiple of 10 on their $1b subscription business would be reasonable (albeit overvalued) and a p/s multiple of 0.5 on their ~$3b hardware business (generous) would put them around $12b ($42/share).

As u/WBuffetJr points out, it is notoriously hard to time shorts properly. OG link But stonk is in a downtrend along with covid. Bubble for covid stonks popped around mid-February, imo and will continue downwards slide. But then again, I am terrible at the stonk market game so you should probably not listen to me. I do not know what I am talking about and I do not know what I am doing.

Edit: some things from Twitter google trends shows that gyms are more searched than peloton

Edit: peloton website trends but it does look like more people are visiting the website. Call me skeptical but they probably got a bump in traffic from the bad news. Still good traffic though so something to keep in mind. I think deliveries are going to be down big in April, just a feeling I am getting from reading more.

TL;dr I don't like peloton, and I think fewer people will order PTONs because new buyer comment volume has gone down and the pandemic is ending. Revenue growth will turn negative.

Position: 07/16 50p and 60p. Currently in these and will most likely hold until expiry.

Edit Position May 07: 80 x 07/16 60p holding, sold 20 x 07/16 50p for about 1500 gain before earnings. Added day after earnings: 35 x 09/17 50p.

Edit May 07: For anyone curious about the logic behind TA and my personal sense of support levels from looking at the squiggly lines.

Bit of resistance at 90ish it appears. 80ish is also a support region, but a quick retest would probably blow through it.

Next psychological and emotional support lies around 65ish. Buyers at that level likely feel an emotional connection to the stock with strong conviction regarding their $PTON thesis, however, it’s very breakable given a rapid market descent and a changing market environment which is unfavorable for PTONs business.

After those sellers, you’re headed back down to the region where the stock will find extremely strong support. Between the 45ish region and around IPO price. Buyers in this region have watched their wealth soar an unimaginable amount. While also watching it decline. They’ve likely developed strong convictions that peloton is the next Apple. It will be very difficult to dislocate them from their shares. However, it always depends on supply/demand at such a level and when short sellers start to take over, things can get ugly. It also depends on prospects of business which needs to be more certain to attract new buyers.

Personally, I see PTON down to 45 by June/July