A deep dive into the Peloton Interactive opportunity

09 Jul 2021

By Eric Lee, Account Manager, Phillip Futures

Peloton Interactive Inc. (Nasdaq: PTON) is the largest interactive fitness platform in the world, with a loyal community of more than 5.4 million members. They pioneered the connected, technology-enabled fitness and streaming of immersive, instructor-led boutique classes to their members anytime, anywhere. Peloton Interactive makes fitness entertaining, approachable, effective, and convenient, while fostering social connections that encourage their members to be the best versions of themselves. Their world-class instructors teach classes across a variety of fitness and wellness disciplines, which include indoor cycling, indoor/outdoor running and walking, bootcamps, yoga, strength training, stretching, and meditation.

Business Model

Peloton Interactive is a hardware technology company that manufactures and distributes fitness devices, namely its Peloton Bike and Tread. Its devices are connected to the internet and thus allow users to have virtual group workout sessions. Apart from selling its hardware products, Peloton Interactive gains revenue by charging users a monthly subscription fee as well.

Click here to learn more about their business model by watching a Peloton Interactive Inc. commercial.

Competitive Advantages

  1. Brand
  2. Network effects
  3. High switching cost (for those who purchased their Bike and Thread products)

Strong numbers that stood out from its Q3 2021 result, apart from its strong revenue growth and subscription rates, is its average monthly workouts per connected fitness subscription. One of the argument against Peloton Interactive was that it was a pure COVID-19 play that benefited last year as people were working from home. As the economy recovers from the pandemic, people are likely to head back to a physical gym and Peloton Interactive’s growth rate will decline from stratosphere. That may be true for awhile as can be seen from the chart that average monthly workouts dropped initially from peak of 24.7. Latest Q1 2021 report that this number rebounded and even broke a new high to hit 26 workouts per month. What this means is that the users love Peloton Interactive’s products and services to an extent that each subscription account recorded 26 workouts in a month, a very impressive number.


Source: Peloton Interactive Inc. Q3 2021 Report

Peloton Bikes and Thread products are not cheap. However, if there are 2-3 household members exercising, it makes this investment worth it as its monthly subscription allows user to set up multiple accounts for their family members. A single user who finds the investment expensive, can opt to subscribe to the app-access only plan and purchase a lower-priced substitute.

Peloton Interactive’s CEO, John Foley, said that the fitness company is aiming to have 100 million paying subscribers and laid out 6 strategies to achieve that lofty goal:

  1. U.S. growth
  2. Product innovation
  3. Geographic expansion
  4. Greater affordability
  5. Digital expansion
  6. Creating a welcoming work environment

Competitive Advantages

Based on past growth trajectory and the CEO’s long term target of 100 million subscribers, I did a projection that if the growth rate of new subscribers is at 100% for Q3 2022 and subsequent growth rates slow down at a 20% reduction yearly, Peloton Interactive’s subscribers may hit 25 million by Q3 2026. Taking an assumption of 50% Digital subscribers ($12/month) and the other 50% of All-Access subscribers ($34/month), plus the ratio of 5:1 for the revenue generated from its hardware sale to subscriber revenue, Peloton Interactive’s revenue is projected to hit $43 billion by Q3 2026, as shown in the table below.


Source: Eric Lee’s using Excel

Peloton Interactive is very young as a listed entity; market is still in the midst of finding its range of acceptable valuation. As such, I took guidance from Apple’s valuation as a basis for valuing the company. Reason being, like Apple, Peloton Interactive is a hardware company with software subscription added to its ecosystem.

Thus, based on the above revenue projected by Q3 2026, should Peloton Interactive trade at a Price-to-Sales valuation of 3x then, its share price may possibly trade at US$340. Should it trade at 8x Price-to-Sales valuation then, as Apple is trading at now, then its share price may trade at US$900. Peloton Interactive is currently trading at Price-to-Sales of 8.7x. As its multiples continue to normalise, as long as its revenue continues to grow at this projected rate, its share price may continue to appreciate, taking a lower end valuation of 3x Price-to-Sales in 5 years’ time.

Competitive Advantages


Source: Phillip MT5

Peloton Interactive dropped below the 250 days Moving Average briefly before crossing back up and was hovering in a range of $100-$115 the past one month, as can be seen from the attached hourly chart.

Price broke above the resistance of $115 and built up momentum as it traded higher. Next 3 resistance levels are at $125, $140 and $170. Support is at $100 and the next significant support is at $80.

Please be reminded to do your own due diligence on the company’s fundamentals & assess if the Fundamental & Technical analysis opinions are applicable to your trading or investing needs. 


Eric Lee is an Account Manager with Phillip Futures. With expertise in Futures, Forex, Stocks, and Unit Trust, Eric makes an all-rounded advisor. Make informed trading decisions without spending time combing through endless information as Eric readily provides clients with trade alerts and insights via WhatsApp. Over his years of experience, Eric developed systematic strategies in trading and investing. Book a complimentary coaching session below to leverage on his expertise as he imparts his knowledge to enhance your trading journey.

An Exchange Traded Fund (ETF) is a marketable security that is formed to track nearly anything, ranging from a specific index, sector, commodity, or increasingly, theme. They are most commonly used to track a basket of stocks, and can typically be accessed through the same channels as regular stocks. ETFs are typically separated into passively-managed ETFs that simply mirror the security they are tracking (e.g. the STI), and actively managed ones that attempt to deliver higher returns or specific investment objectives, often with a pre-specified theme in mind (e.g. ARK Invest’s Innovation ETF).

Why should I trade in ETF CFDs?

  • ETFs have been growing in popularity over the years. 2020 was the best year for ETFs yet, with global equity ETFs seeing more than $1T in inflows within a 12-month period. Using CFDs to gain exposure to ETFs allows for greater capital efficiency because only a portion of the contract value is required as margin to establish a position.
  • ETFs are particularly popular with investors seeking a relatively hassle-free investing experience, while desiring exposure to a range of specific and relatively understandable securities. Trading ETF CFDs brings greater convenience by eliminating the need for traders to hold multiple currencies in order to access global ETFs.
  • An investor wanting exposure to the post-pandemic economic recovery could open a position in the well-known SPDR S&P 500 ETF (SPY), which tracks the performance of the S&P 500. Another investor that may be convinced of the future importance of Environmental, Social and Governance concerns (ESG) may find the increasing selection of ESG-themed ETFs that track a basket of high ESG-rating companies to be a good investment, rather than cherry-picking individual equities by hand. ETF CFDs can act as a powerful tool for traders can profit from both directions of the market by taking on long or short positions.

A look at two ETF CFDs we offer:

1) Has the ARKK been sunk?

ARK Innovation ETF (ARKK) ARKK is an actively managed ETF by ARK Invest that invests in a range of companies based on their innovative and industry-disrupting potential. ARKK’s largest holdings are in companies such as Tesla, Square, and Zoom. ARKK is down around -33% from peaking on 12th Feb and is currently in the red for the year to date as the market experiences a risk-off outflow of funds. Superstar fund manager Cathie Wood has however been consistently doubling down on her bets, buying even more shares in growth stocks that are going through their own tumultuous periods such as DraftKings, Peloton, Teladoc, and Tesla. In her view, ARKK is playing the long game, and remains steadfastly convinced in the long-term prospects of these growth stocks beyond this current bout of volatility. Similarly on outflows, investors are still betting big on ARKK as ARK Invest has only lost about $1.2B in assets this year across all its six funds, compared to seeing an inflow of $15.1B during the same period. Recently, investors have been nervously eyeing ARKK’s basket of tech stocks as their future earnings potential remain vulnerable to erosion through high inflation – the dominant concern of the market in recent weeks. As commodities – the major contributor to the recent heightened inflation fears – drops sharply from record highs, are investor concerns over hyperinflation overblown?

2) Searching for exposure to Asian equities?

iShares MSCI Asia ex Japan ETF (AAXJ) The AAXJ is currently trading -10.6% adrift of all-time highs seen in February, giving up gains in tandem with an Asia-wide equity sell-off at the time. Given that slightly over 40% of the ETF’s holdings are based in China, the ongoing tumult seen in Chinese equities currently have carried over nearly perfectly in the AAXJ, as Chinese investors take a breather after the stellar gains made over the past year. Looking ahead, Asia – and particularly China, is steaming ahead with its economic recovery. China is widely expected to be one of the best-performing major economies this year, providing a major boost to the outlook for corporate earnings. As the rest of Asia and the world gradually opens up their own economies, AAXJ is likely to again benefit from strong Asian outperformance amidst a strengthening trade outlook.

CFD is available for trading on Phillip MetaTrader 5 (MT5).

Features of trading CFD:

  • Trade in both the bull and the bear markets
    The ability to enter a long and/or short position allow traders to take advantage of both rising and falling markets.
  • Smaller barrier to entry
    Flexible and smaller contract sizes. This means that traders will be able to enter into a contract with a modest amount of capital.
  • No expiration date or risk of delivery
    Unlike futures which commonly have a fixed expiration date, CFD allows traders to perpetually hold the position(s). CFD is cash settled, no need to worry about the delivery of the underlying asset.

 

Benefits of using Phillip MT5:

Trade at zero commission on a dynamic platform that offers low spreads. Integrated with Autochartist and Trading Central Indicators, and available on mobile, web and desktop app, you will never miss a trading opportunity with Phillip MT5.

Register for a FREE 30-day Phillip MetaTrader 5 Demo Account

More Market Trends

After hitting a fresh 16-month low on Friday, the EURUSD rebounded to retest the 38.2 Fibonacci level on the daily chart. The US Dollar Index

Read More >

Learn how and why banking stocks could help to inflation-proof your portfolio.

Read More >

Gain exposure to popular sectors – Electric Vehicles (EV), Microchip Stocks, Consumer Staples, Financials – from as small as one share CFD on Phillip MT5 at zero commission with no minimum and platform fees.

Read More >