David Enhorn pitches Peloton on the Robin Hood Traders Convention.
Getty Photographs (L) | CNBC (R)
Greenlight Capital’s David Einhorn thinks Peloton may commerce as excessive as $31.50 a share if the corporate slashes prices, which may double its present adjusted EBITDA projections, CNBC has discovered.
That is about 5 occasions the present worth of its shares, which have been buying and selling round $6.20 noon on Friday.
In a pitch deck Einhorn offered on the Robin Hood Traders Convention on Wednesday, Einhorn pedaled on a Peloton bike as he defined the corporate’s many missteps over time and the vast runway it has to show its enterprise round, in keeping with a replica of the presentation obtained by CNBC.
If it may generate $450 million in EBITDA, about double its present projections, Peloton may commerce between $7.50 and $31.50 a share, primarily based on a benchmark examine of comparable firms, mentioned Einhorn.
Notably, Greenlight’s evaluation does not assume “any development in subscription revenues from new clients or worth will increase or different new initiatives, resembling activation charges from the rising used bike market and worldwide enlargement,” Einhorn mentioned.
“Going through chapter can power change,” he mentioned through the pitch. “Peloton has began to right-size and money burn has stopped. It refinanced its debt to push out maturities. And with a loyal buyer base that pays $44 monthly, it is a priceless subscription enterprise.”
Einhorn structured the presentation as if he was an teacher giving a exercise class, sometimes shouting out buyers within the room. The primary web page of the deck was titled “15 minute ‘Inventory Pitch Experience'” and reveals a picture of Einhorn on a Peloton bike.
“Let’s begin with some shoutouts,” Einhorn mentioned at first of the pitch, calling out plenty of buyers and sponsors, just like the best way a Peloton teacher would name out class attendees.
Every web page of the deck reveals a leaderboard of different obvious riders — together with investor Invoice Ackman and Robin Hood CEO Richard Buery — together with Einhorn’s pace, cadence and resistance, mimicking what customers see whereas taking a Peloton bike class.
Greenlight and Peloton declined remark to CNBC.
Greenlight, which had a $6.8 million stake within the firm as of June 30, carried out a benchmark examine analyzing Peloton’s value construction. The agency in contrast Peloton to 3 units of peer firms: health companies like Planet Health, shopper subscription firms like Chewy and shopper on-line subscription companies like Spotify and Netflix.
The examine discovered that despite the fact that Peloton has already lower prices to curb its money burn, it is seeing “principally zero adjusted EBITDA versus the peer median of $406 million,” Einhorn said within the pitch.
“For friends, over a 3rd of gross revenue flows via to EBITDA. A part of the issue is that Peloton spends an excessive amount of on analysis and improvement,” mentioned Einhorn. “Simply as one instance, Peloton spends about twice the R&D that Adidas spends… in greenback phrases. And Adidas has 8 occasions extra gross sales than Peloton and an order of magnitude extra product traces.”
Peloton’s stock-based compensation expense of $305 million in fiscal 2024 can also be double the peer median and corresponding to far bigger firms like Spotify and Netflix – that are 30 occasions and 140 occasions bigger, respectively, Einhorn mentioned.
On the coronary heart of the thesis is Peloton’s high-margin subscription enterprise, which generated $1.71 billion in income in fiscal 2024 with a gross margin of about 68%. If Peloton could make deep value cuts, the corporate may generate much more free money move and EBITDA with no need to promote extra bikes and treadmills, and with no need to develop its subscriber base.
Earlier this yr, Peloton introduced plans to put off 15% of its workers, shut retail showrooms, and modify its worldwide gross sales plans, amongst different value financial savings initiatives. It expects these cuts may cut back annual run price bills by greater than $200 million by the tip of fiscal 2025.
In August, Peloton mentioned it expects it may submit adjusted EBITDA of between $200 million and $250 million in fiscal 2025. However Einhorn mentioned if the corporate will get its value construction extra in keeping with the benchmark, “there ought to be $400 – $500 million of EBITDA from the present subscription income base.”
Firms that generate that vary of EBITDA are likely to commerce at 9 to 32 occasions that quantity, implying a possible Peloton share worth of between $7.50 on the low finish and $31.50 on the excessive finish, if it reaches $450 million in EBITDA, he mentioned.
To get there, Einhorn mentioned the corporate wants new administration. In August, Peloton’s interim co-CEO Karen Boone mentioned she believes the brand new high government will probably be in place by the point the corporate subsequent studies earnings, which are actually scheduled for Thursday.
“The good a part of our thesis is that we do not have to persuade Peloton that is the proper method,” mentioned Einhorn. “Peloton’s interim co-CEOs are telling the identical story of a recurring, high-margin subscription income stream enterprise. They’ve additionally carried out an preliminary cost-cutting plan, which nonetheless leaves loads of room for the brand new CEO.”
He mentioned the corporate continues to garner high evaluations amongst customers and health publications and has a rabidly loyal buyer base. He added that despite the fact that health buffs are returning to the gymnasium, residence exercises are right here to remain.
“Figuring out within the consolation of your individual residence just isn’t a fad,” mentioned Einhorn. “And a pattern in direction of more healthy existence ought to all drive underlying subscriber development over time.”
