David Enhorn introduces Peloton at the Robin Hood Investors Conference.
Getty Images (L) | CNBC(R)
David Einhorn from Greenlight Capital says Peloton CNBC has learned that if costs are cut, the company could trade as high as $31.50 per share, which could double its current adjusted EBITDA forecasts.
That's about five times the current share price, which was trading at around $6.20 on Friday afternoon.
In a pitch deck that Einhorn presented at the Robin Hood investor conference on Wednesday, Einhorn stepped on a Peloton bike and explained the company's many missteps over the years and the large amount of leeway it needs to change, according to a copy of the presentation to get his business back on track obtained from CNBC.
If Peloton can generate $450 million in EBITDA, about double its current guidance, Peloton could trade between $7.50 and $31.50 per share, based on a benchmark study of comparable companies, Einhorn said.
Notably, Greenlight's analysis does not assume “subscription revenue growth from new customers or price increases or other new initiatives such as activation fees from the growing used bike market and international expansion,” Einhorn said.
“Bankruptcy can force change,” he said during the pitch. “Peloton has started to resize and its cash burn has stopped. It refinanced its debt to push out maturities. And with a loyal customer base paying $44 a month, it’s a valuable subscription business.”
Einhorn structured the presentation as if he were an instructor giving a training course, occasionally calling investors into the room. The first page of the deck was titled “15 Minute 'Stock Pitch Ride'” and features a picture of Einhorn on a Peloton bike.
“Let’s start with a few shoutouts,” Einhorn said at the start of the pitch, calling out a series of investors and sponsors in much the same way a Peloton instructor might address class participants.
Each side of the deck shows a leaderboard of other potential riders — including investor Bill Ackman and Robin Hood CEO Richard Buery — as well as Einhorn's speed, cadence and resistance, mimicking what users see when they take a Peloton cycling class.
Greenlight and Peloton declined to comment to CNBC.
Greenlight, which held a $6.8 million stake in the company as of June 30, conducted a benchmark study analyzing Peloton's cost structure. The company compared Peloton to three groups of comparable companies: Fitness companies like Planet FitnessConsumer subscription companies like Toughand consumer online subscription companies like Spotify And Netflix.
The study found that while Peloton has already cut costs to curb its cash burn, it has “essentially recorded zero adjusted EBITDA compared to the peer average of $406 million,” Einhorn explained in the presentation.
“For competitors, over a third of gross profit flows into EBITDA. Part of the problem is that Peloton spends too much on research and development,” Einhorn said. “To give just one example, Peloton spends about twice as much on research and development Adidas spends… in dollars. And Adidas has eight times more sales than Peloton and an order of magnitude more product lines.”
Peloton's stock-based compensation expense was $305 million in fiscal 2024 is also twice the peer median and comparable to much larger companies like Spotify and Netflix — which are 30 times and 140 times larger, respectively, Einhorn said.
At the heart of the thesis is Peloton's high-margin subscription business, which generated revenue of $1.71 billion in fiscal 2024 with a gross margin of about 68%. If Peloton can make deep cost cuts, the company could generate far more free cash flow and EBITDA without having to sell more bikes and treadmills and without having to grow its subscriber base.
Earlier this year, Peloton announced plans to lay off 15% of its staff, close retail showrooms and adjust its international sales plans, among other changes. These cuts are expected to reduce annual operating costs by more than $200 million by the end of fiscal year 2025.
In August, Peloton said it expected to achieve adjusted EBITDA of between $200 million and $250 million in fiscal 2025. However, Einhorn said that if the company can better align its cost structure with the benchmark, “EBITDA should be $400 million to $500 million from the current subscription revenue base.”
Companies that generate EBITDA of this range tend to trade at between nine and 32 times that amount, putting a potential Peloton stock price between $7.50 at the low end to $31.50 at the high end End implied when EBITDA reaches $450 million, he said.
To get there, Einhorn says the company needs new management. In August, Peloton's interim co-CEO Karen Boone said she expected the new executive to be in place until the company's next quarterly report, now scheduled for Thursday.
“The beauty of our thesis is that we don’t have to convince Peloton that this is the right approach,” Einhorn said. “Peloton’s interim co-CEOs tell the same story of a recurring, high-margin subscription revenue business. They have also implemented an initial cost-cutting plan that still leaves plenty of scope for the new CEO.”
He said the company continues to receive top reviews from consumers and fitness publications and has an extremely loyal customer base. He added that even as fitness enthusiasts return to the gym, home workouts are here to stay.
“Exercising in the comfort of your own home is not a fad,” Einhorn said. “And a trend toward a healthier lifestyle should drive underlying subscriber growth over time.”
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