posted by mark
on Thu, 09/26/2019 - 09:20
Thinking of buying Peloton shares? Read this article.
Some of the significant issues I see are:
- While revenues are great, cost control clearly is an issue (like many recent IPO's). They are getting 40% gross margins, but still have lost 195.6M in 2019, 47.9M in 2018 and 71.4M in 2017. Not a great trend for such rich gross margins.
- Peloton disclosed that they have "ongoing material weakness" in their financial reporting. This means they are hedging themselves from legal liabilities should their losses be even higher than the dismal net numbers they have provided. "...an admission that it does not have proper control of its 'information technology general controls, controls to address segregation of certain accounting duties, timely reconciliation and analysis of certain key accounts and the review of journal entries.' " Don't worry... their auditor's will provide an opinion on their accounting and controls AFTER it goes public.
- Finally, anyone familar with the health business knows people get pumped up to "do the work" and many quickly drop off when the going gets tough. No, you can't just take a pill each day. You have to sweat and work hard! This addresses the "coming and going" of subscribers or "Churn". The numbers here are a little fuzzy since members can put their membership on hold for a few months. Often, when a health membership goes on hold, the member continues to pay for a few months in the hope that they will get back to it, but they eventually discontinue their membership.
- The ownership is concentrated in senior management. The public market buys the shares and then, doesn't have much say in the running of the company.
To all that I say, "Who is getting the happiness? Guess who!"
