0% 5 year convertible loan is about as good of terms as any loan (not given to government insiders, and corrupt government programs) that I have ever seen. This is particularly so as multiple brokerages have come out and stated Peloton is “overvalued” and thus sell ratings.
The shares have underperformed year to date by quite a bit. Like saying Tom Brady underperformed throughout part of the season for a few games…but this may be due to hedging that goes on in such transactions. Underwriters go short to hedge the loan (don’t ask me the technicals as to why, they just do).
Peloton is not digital SaaS. They sell expensive hardware linked with software (like Apple many will say). Thus their growth is not all recurring. Have to sell more bikes every year. However, that is not all there is with Peloton.
Peloton Tread has just come out in Britain and Canada and will be in the U.S. beginning in May. The quarter ends in July, so will be part of the next fiscal quarter its contributions to revenue.
Management is already talking up how above expectation demand has been in Britain and Canada for the tread. Treadmills are a larger market than bikes. Thus, point being, if the Tread becomes another killer product it will contribute to another year or two (or longer) of hyper-growth. Peloton also has clothing line that is doing well (but has a very long way to go to be material) and is talking about dominating in the strength category. They are not sure and not stating if they will do that through additional hardware or not. Seems they will have additional product for strength and they will see how it goes.
The Precor acquisition puts Peloton into the commercial market and one can easily see how demand for the commercial equipment, branded and connected to Peloton software, may increase demand as people who travel, or go to college, or go to the gym, may want to use their accounts on commercial bikes as well. A Peloton branded bike is more valuable than just a bike, or anyone else’s bike as Peloton has the subscribers. It is also another mechanism to introduce new customers to the phenomenon of something that makes people not just exercise, but actually love to exercise. It is like getting kids to love their broccoli or the like in my mind.
In any event, have not even stated the international growth potential, despite the hardware component, there is real opportunity for years of growth here and this financing are investors finding a place to move $1 billion at 0% interest in a non-recourse loan (I assume it is not linked to any assets other than the share price going up). Anyone would take such money if offered to them. It says a lot about perception of the business. I am just laying out reasons the shares have for continual growth moving forward.
This said, I have large profits in a tax deferred account on Peloton, so I can freely move in and out with no ramifications. I did nothing for a long time. Given the underperformance year to date however (that has been substantial) I switched it out for better moving stocks like FVRR and AXON. This financing may be at least part of the reason for the underperformance, so now it wants to draw me back in again…shall see. The market loves a killer product and there is reason to think Tread will be another winner. Speculative reason, mostly from the comments of management based upon the rollouts of the new product in Britain and Canada, and that this will translate to the United States.
Tinker