Peloton’s suspect accounting and outrageous claims about its total addressable market suggest a WeWork-like perception of reality.
August 28, 2019 Palo Alto / CA / USA - Peloton store exterior view; Peloton is an American exerciseLuxury fitness company Peloton is expected to IPO on Thursday, September 26. At a price range of $26-$29 per share, the company plans to sell up to $1.1 billion of shares with an expected market cap of ~$7.6 billion. At the midpoint of the IPO price range, PTON currently earns an unattractive rating.-like perception of reality.
Despite its rapid growth, the company has made no progress towards profitability. Its economic earnings, the true cash flows of the business, declined from -$54 million in 2018 to -$226 million in 2019 ., every unprofitable company’s favorite metric. This metric excludes $90 million in stock-based compensation expense, $22 million in depreciation and amortization, $12 million in litigation expense, and $7 million in construction costs related to its new corporate headquarters.
. This disclosure means Peloton didn’t have adequate technology and processes in place to ensure the accuracy of its financial statements and increases the odds that Peloton need to restate its financials in the future. company, Peloton is not required to have its auditor give an opinion on its internal controls.
It caused the company’s inventory balance to increase from $25 million in 2018 to $137 million in 2019, a 440% increase. The fact that Peloton apparently has ~$100 million worth of treadmills in inventory, and that it’s earning inferior margins on those it does sell, suggests that the launch of its treadmill has not been successful. I can’t know for sure without more disclosure, but if Peloton was selling lots of treadmills it would probably be quick to tell everyone.I’m not surprised that Peloton’s treadmill sales are disappointing.
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