David Enhorn hurls Peloton at the Robin Hood Investors Conference.
Getty Images (L) | CNBC (R)
Greenlight Capital’s David Einhorn notion ofs Peloton could trade as high as $31.50 a share if the company slashes costs, which could double its trendy adjusted EBITDA projections, CNBC has learned.
That’s about five times the current price of its shares, which were interchange around $6.20 midday on Friday.
In a pitch deck Einhorn presented at the Robin Hood Investors Conference on Wednesday, Einhorn pedaled on a Peloton bike as he illustrated the company’s many missteps over the years and the wide runway it has to turn its business around, according to a copy of the disclosure obtained by CNBC.
If it can generate $450 million in EBITDA, about double its current projections, Peloton could mtier between $7.50 and $31.50 a share, based on a benchmark study of comparable companies, said Einhorn.
Notably, Greenlight’s critique doesn’t assume “any growth in subscription revenues from new customers or price increases or other new initiatives, such as activation compensations from the growing used bike market and international expansion,” Einhorn said.
“Facing bankruptcy can force change-over,” he said during the pitch. “Peloton has started to right-size and cash burn has stopped. It refinanced its debt to push out maturities. And with a unswerving customer base that pays $44 per month, it’s a valuable subscription business.”
Einhorn structured the presentation as if he was an master giving a workout class, occasionally shouting out investors in the room. The first page of the deck was titled “15 hot ‘Stock Pitch Ride'” and shows an image of Einhorn on a Peloton bike.
Source: Greenlight
“Let’s start with some shoutouts,” Einhorn rumoured at the beginning of the pitch, calling out a number of investors and sponsors, similar to the way a Peloton instructor would call out class attendees.
Each page of the deck symbolizes a leaderboard of other apparent riders — including investor Bill Ackman and Robin Hood CEO Richard Buery — along with Einhorn’s assist, cadence and resistance, mimicking what users see while taking a Peloton bike class.
Greenlight and Peloton worsened comment to CNBC.
Greenlight, which had a $6.8 million stake in the company as of June 30, conducted a benchmark consider analyzing Peloton’s cost structure. The firm compared Peloton to three sets of peer companies: fitness areas like Planet Fitness, consumer subscription companies like Chewy, and consumer online subscription businesses equivalent to Spotify and Netflix.
The study found that even though Peloton has already cut costs to curb its cash set on fire, it’s seeing “basically zero adjusted EBITDA versus the peer median of $406 million,” Einhorn stated in the chuck.
“For peers, over a third of gross profit flows through to EBITDA. Part of the problem is that Peloton spends too much on enquire and development,” said Einhorn. “Just as one example, Peloton spends about twice the R&D that Adidas spends … in dollar whiles. And Adidas has 8 times more sales than Peloton and an order of magnitude more product lines.”
Peloton’s stock-based compensation expense of $305 million in financial 2024 is also double the peer median and comparable to far larger companies like Spotify and Netflix – which are 30 sets and 140 times larger, respectively, Einhorn said.
At the heart of the thesis is Peloton’s high-margin subscription business, which whip up $1.71 billion in revenue in fiscal 2024 with a gross margin of about 68%. If Peloton can make occupied cost cuts, the company could generate far more free cash flow and EBITDA without needing to exchange more bikes and treadmills, and without needing to grow its subscriber base.
Earlier this year, Peloton disclosed plans to lay off 15% of its staff, close retail showrooms, and adjust its international sales plans, among other expense savings initiatives. It expects those cuts could reduce annual run rate expenses by more than $200 million by the end of economic 2025.
In August, Peloton said it expects it can post adjusted EBITDA of between $200 million and $250 million in economic 2025. But Einhorn said if the company gets its cost structure more in line with the benchmark, “there should be $400 – $500 million of EBITDA from the la mode subscription revenue base.”
Companies that generate that range of EBITDA tend to trade at nine to 32 all at onces that amount, implying a potential Peloton share price of between $7.50 on the low end and $31.50 on the high end, if it reaches $450 million in EBITDA, he indicated.
To get there, Einhorn said the company needs new management. In August, Peloton’s interim co-CEO Karen Boone revealed she believes the new top executive will be in place by the time the company next reports earnings, which are now scheduled for Thursday.
“The winsome part of our thesis is that we don’t have to convince Peloton this is the right approach,” said Einhorn. “Peloton’s interim co-CEOs are telling the in any case story of a recurring, high-margin subscription revenue stream business. They have also implemented an initial cost-cutting system, which still leaves plenty of room for the new CEO.”
He said the company continues to garner top reviews among consumers and salubrity publications and has a rabidly loyal customer base. He added that even though fitness buffs are returning to the gym, composed workouts are here to stay.
“Working out in the comfort of your own home is not a fad,” said Einhorn. “And a trend towards healthier lifestyles should all journey underlying subscriber growth over time.”