Branded: Is Peloton Dead?

The bull case for Peloton is that is an amazing brand with huge optionality with a massive TAM. The bear case is a company that lost it’s COVID tailwinds and will never find growth again. Let’s look at how some historically strong brands have performed historically to see if this kind of drop is normal, then have a quick discussion around whether Peloton is ready to overcome what ails them.

Dying Stocks

Markets are pretty efficient, sometimes they just need time. Peloton stock is down big. A stock losing 2/3rds of it’s value isn’t normal, but this market isn’t normal. Jokes are worth billions of dollars right now. So is the market right on Peloton? Is Peloton a dying company?

I’m going to mostly focus on companies with strong brands for comparisons. I’ll start with the brand to end all brands… Tesla. It is interesting to see that Peloton has experienced a steeper drop than Tesla ever has. We are off to a good start.

This one is just for fun. Holy moly did Amazon have a dip.

Here is Peloton versus Starbucks, which I think is a sneaky fun comparison. Starbucks never came close to the volatility Peloton has showed, but to be fair, they never had the winds shift like Peloton had.

Here is my favorite. Holy volatility. Netflix has survived two major company changes (DVDs to streaming to creating their own content) and created their own debacle (Qwikster) that led to some of this volatility. If I squint, I can see similarities in the situations. Something happened to both that created a major negative shift, some of which was self-inflicted. Netflix has reacted in historic ways, but what will Peloton do?

Everyone Has a Plan Until They Get Punched in the Face

Peloton got punched in the face. It happens, even to the best companies. It’s better to dodge punches, but when you do get hit, how you react is of utmost importance. How will Peloton react?

Let’s turn to history to try and see how Peloton will react. Peloton has been doubted since the company was founded. For the first three years, no institutional investors would provide funding. Foley and gang just kept working until they couldn’t be ignored. They were frugal yet created a cult brand. Peloton needs to tap back into that. They’ve done the hard work, now they just need to get back on track.

I’m Excited but Nervous

The other big controversy for Peloton was the nervous but excited ad. I don’t really count this as adversity, but it does make for a good meme. It also sums up how I view Peloton as an investment right now. I see a potential lollapalooza effect coming. From a cult brand to network effects to switching costs to very attractive unit economics, Peloton has a lot going for it. However, it doesn’t come without risk. At the rate Peloton is burning cash, they only have two quarters of cash available. Growth is rapidly declining, customer acquisition costs are rising. The bears are out, but the bull case is alive. I’m excited, but nervous.