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David Einhorn’s Optimistic Outlook on Peloton’s Future
David Einhorn, the head of Greenlight Capital, recently presented a compelling case for Peloton at the Robin Hood Investors Conference, suggesting that a significant cost reduction could elevate the company’s stock price to as much as $31.50 per share. Currently, Peloton’s shares hover around $6.20, meaning that Einhorn’s projection represents a potential fivefold increase.
During his presentation, Einhorn utilized a creative approach by simulating a Peloton workout class, engaging the audience and drawing parallels between the company’s recovery strategy and fitness regimens. The presentation, entitled “15 minute ‘Stock Pitch Ride,'” highlighted Peloton’s historical missteps while emphasizing the potential for turnaround, given the right strategies and management changes.
If Peloton can achieve adjusted EBITDA of $450 million—twice the current expectations—Einhorn estimates the stock could lie within the $7.50 to $31.50 range, based on a comparative analysis with similar companies. He noted that this projection does not factor in possible growth in subscription revenues, recent customer acquisitions, price hikes, or initiatives from the burgeoning market for used bikes and global expansion.
Einhorn remarked, “Facing bankruptcy can force change,” indicating that the company is already making strides to reduce its cash burn rate. Peloton has recently refinanced its debt, extending maturity dates, and has a committed customer base that pays an average of $44 monthly for subscriptions, a promising aspect of its business model.
The pitch deck also featured a leaderboard styled after Peloton bike classes, illustrating Einhorn’s insights alongside references to notable investors in attendance, conveying an engaging and dynamic presentation technique.
Despite previous setbacks, Einhorn’s analysis sheds light on Peloton’s cost structure, comparing it to various peers in the fitness and subscription sectors. He pointed out that while Peloton has taken steps to cut costs, it remains behind its competitors, showing virtually zero adjusted EBITDA against a peer median of $406 million.
Einhorn highlighted that Peloton allocates a disproportionately high budget to research and development—essentially double that of companies like Adidas, which generates significantly more sales. Additionally, the stock-based compensation expenses for Peloton are markedly higher than the peer median, positioning them similarly to much larger entities like Spotify and Netflix.
The core of Einhorn’s thesis is Peloton’s lucrative subscription service, contributing $1.71 billion in revenue and maintaining a 68% gross margin. He believes that with aggressive cost-cutting measures, Peloton could enhance its free cash flow without needing to increase bike and treadmill sales or its subscriber base.
In its pursuit of reducing operational expenditures, Peloton has already announced a workforce reduction of 15%, alongside closing retail showrooms and modifying its international sales strategy. These actions aim to lower annual expenses by over $200 million by the close of fiscal 2025.
Peloton has projected adjusted EBITDA between $200 million and $250 million for fiscal 2025, but Einhorn argues that aligning its costs with industry benchmarks could yield EBITDA levels between $400 million and $500 million, thus increasing the attractiveness of the stock.
Einhorn emphasized the importance of new management to steer the company effectively as it undergoes these changes. Interim co-CEO Karen Boone has suggested that a permanent executive should be in place by the time Peloton releases its next earnings report.
“The beauty of our thesis is that Peloton’s leadership recognizes the path forward: a recurring revenue model with high margins,” Einhorn stated. His sentiment reflects a growing confidence in the company’s future direction, echoing consumer satisfaction and loyalty despite the competitive fitness landscape.
Einhorn concluded with an optimistic perspective on the continuing relevance of home fitness: “Home workouts are not a trend; they are becoming a mainstay as individuals prioritize healthier lifestyles.”
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