Peloton Interactive Planning To Go Public But Will It Survive?

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Whitney Tilson’s email to investors discussing Peloton Interactive Is a Phenomenon. Can It Last?; WeWTF; WeWork: Is There Any There There?; Dating apps used to seduce gullible investors.

1) The New York Times has an insightful article about exercise bike company Peloton Interactive, which on Tuesday filed to go public: Peloton Is a Phenomenon. Can It Last? Excerpt:

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As far as indoor cycling machines go, the $2,245 Peloton bike is nothing special. It has a sleek black and red frame. It has a big screen. It's on Wi-Fi.

But a combination of aspirational infomercials ("This ... is fitness evolved.") and streaming classes taught by glamorous instructors has led Peloton to sell 577,000 of its bikes and treadmills in five years. Richard Branson is a fan. So are Jimmy Fallon, Kate Hudson and the Obamas.

I know quite a few people with Pelotons, and they all love them – I've even thought about buying one myself – but count me a skeptic on the stock at this valuation. In addition to the reasons cited in the NYT article, another major concern is that the subscriber churn looks to be far higher than the 0.7% monthly rate the company touts. The reason, as this Twitter thread shows, is that it's calculated by dividing the number of subscribers who cancel (net of reactivations) by the "average number of Fitness Subscribers in each month."

Peloton Interactive math

The reason this calculation is misleading is that most subscribers are on a 12-, 24-, or 39-month subscription. Let's say the average is 24 months... In this case, the more honest calculation of subscriber churn is the number of people who cancel divided by the number of subscribers two years ago! Given that the company's revenue more than doubled last year, you can see how different this calculation is.

(Incidentally, similar math applies when calculating loan default rates. One of the many reasons investors failed to see the looming blowup of many financial institutions like Countrywide and Washington Mutual from 2000 to 2007 was because their loan default rates looked artificially low due to the rapid growth of their loan books.)

Overall, I share the view of the CEO of Stansberry Research, Mark Arnold, who told me:

Even though I forked over the cash and the subscription, I doubt the phenomenon will last.

To be clear, I enjoy and have regularly used the bike. But I hear Bowflex when I think about investing in the stock.

2) No matter how risky Peloton Interactive's business model is and how absurd the company's valuation is, nothing holds a candle to the utter scam of The We Company, parent of office leasing company WeWork.

WeWork vs Peloton Interactive: IPO Frenzy

Here's an article by my friend and favorite tech commentator, Scott Galloway, who, as usual, pulls no punches (the last two sentences in the excerpt below are especially brilliant!): WeWTF. Excerpt:

There are other businesses like this (real estate, Hertz), and they are good businesses. Businesses that trade at, I don't know, 0.5 to 2x revenues. However, WeWTF is claiming it's not in this neighborhood, or even the same planet. So, let's talk valuation.


The last round $47 billion "valuation" is an illusion. SoftBank invested at this valuation with a "pref," meaning their money is the first money out, limiting the downside. The suckers, idiots, CNBC viewers, great Americans, and people trying to feel young again who buy on the first trade – or after – don't have this downside protection. Similar to the DJIA, last-round private valuations are harmful metrics that create the illusion of prosperity. The bankers (JPM and Goldman) stand to register $122 million in fees flinging feces at retail investors visiting the unicorn zoo. Any equity analyst who endorses this stock above a $10 billion valuation is lying, stupid, or both.

3) Here's another of my favorite tech writers, the New York Times' Kara Swisher: WeWork: Is There Any There There? Excerpt:

"When companies fight you on understanding the basic proposition of the mousetrap, it's always bad," said Mr. Wallace of Triton to Bloomberg. "People who have good mousetraps say, 'This is the thing: You put the cheese in, the trap is designed to never break your thumb, and it catches mice nine times out of 10.'"

Dating scams

4) You really can't make this stuff up: Dating apps used to seduce gullible investors. Excerpt:

ASIC is suing National Australia Bank over its "introducer program", alleging the bank used hairdressers and gym instructors to illegally reel in borrowers who could not afford to repay loans.

The regulator also last week announced plans to ban contracts for difference, along with similarly complex and risky binary options.

Major industry players claim they welcome the regulator's efforts to boost transparency but are opposed to plans to reduce product leverage to about 20-times, which regulators claim is in line with best practice across the Asian region.

(To read the entire article, which is behind a paywall, save it to Pocket, a brilliant app and browser plug-in that I use daily. This trick also works for reading Bloomberg articles.)

Best regards,


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