Peloton: Show Me

Self-funding and growing or a coat rack with an iPad that's going to zero?

I’m going to make this post shorter than usual because I think the trajectory Peloton is on is now much clearer. And I have new companies to study and write about.

Peloton reported its fiscal second quarter last week. Barry’s shareholder letter is must-read as always.

To me, the biggest news is Peloton was free cash flow positive excluding stock-based compensation and excluding non-recurring supplier settlement payments. On that basis, free cash flow was $8 million in the quarter. Of course, SBC is a real economic expense and should be included as an expense when considering earnings and valuation. But it is not relevant when evaluating a company’s liquidity given it is non-cash. The supplier settlement payments extricate Peloton from unneeded inventory commitments that prior management made when it got carried away by dreams of runaway demand as far as they eye can see.

The second biggest news is there were 60k net adds in the Connected Fitness business. That was much higher than management’s guidance for 27k, which they essentially told us was conservative at the time. I wrote in Peloton: Retethering (Nov 2022):

Big picture, I have been saying for a while that when Peloton can show it is a) free cash flow positive and clearly self-funding, and b) still growing its subscriber base sentiment towards the stock and its market valuation should improve. Here’s how I phrased it in Peloton: Retethering:

Show Me

It’s interesting to me how clear it was that Peloton was on this path towards