Do you have any companies that you feel could be a lot larger in the next few years? Please tell us about them. Why do you feel that they could be larger? For instance, are they growing revenue extremely rapidly?
I will go ahead and throw Peloton into the ring. Here was my initial write up on the company → https://discussion.fool.com/introduction-to-pton-34527814.aspx?s…
They will be reporting their Q4 in August and guided for 128% YoY growth at the midpoint. I believe growth will be at least 150% YoY.
They are hovering around a market cap of $18B, so they might already be a bit bigger than you are looking for, but they have the revenue to match. They are going to do around $1.8B in revenue for fiscal year 2020 with growth of over 90% YoY. Growing revenue 100% and nearly a $2B run rate is incredible, I don’t foresee DDOG, CRWD or any others of my SAAS holdings accomplishing this feat.
Let’s look a bit beyond Q4 though. The bikes are currently back ordered about ten weeks from what I have read. I also read that Peloton does not account for the revenue until the bike is physically delivered. This means they have a ton of revenue expecting to hit the books for the following quarter, Q1 2021 for Peloton. With this in mind, I fully expect Peloton to guide for growth of 100% or higher for their next quarter.
Then, following Q1, we get into the meat of the year for this business. Q2 and Q3 are always strong due to seasonal demand around the holidays. I would not be surprised to see Peloton report growth north of 100% YoY for the next four quarters!! (including the upcoming Q4 report in August). And this is not off some puny base of $100M in revenue per quarter, we are talking about a business doing over $500M per quarter and climbing towards profitability.
Tell us why you think this is sustainable.
Peloton already pre-announced on May 12 they hit over 1M subscribers. I think this number will come in closer to 1.1M next report. Subscriber growth has be never been below 93% YoY and retention rate has never been below 93%. This rapid growth of their subscribing members coupled with impressive retention rates will be the reason why this growth will be sustainable. The best part of all, is subscription gross margin is going to be above 60% this quarter and I would bet it never dips below this again.
In addition to the $39/mo subscription, the new $13/mo subscription is starting to take off. This subscription is for those who don’t own the bike but want to access Peloton’s vast library of content for other work outs such as yoga. My wife and a few of her friends now subscribe via this service and absolutely love it. They canceled their memberships with gyms like Orange Theory and Empower because they get all they need from the $13 subscription.
I think too many people think of Peloton as a hardware company, similarly to Roku. This company is about the growth of its loyal subscribers, and they are executing very well. I expect an absolute blow out Q4 report and think it is worthy of a spot in all portfolios. I could see this company being worth $50B+ in a hurry.
Rex