Macke portfolio holding Peloton reports in the morning. Officially the Street is looking for a loss of 6c on ~$650mm for the quarter and about $2.5b in revenue for the year, cranking out about $300 to $350 million EBITDA.
But that's not what I'll be watching. I'm grading the company on Churn, Cuts and Cashflow. I don't really care if Peloton is selling a lot of bikes. The head of marketing got fired last week so I suspect they aren't. Bikes and Treads and rowing machines crank out 1/3 of Peloton's revenues but it's only a 13.5% gross margin business. With Tariffs that margins falls to nothing-ish. Peloton runs inventory lean and has China exposure so there could be headlines related to moving product around ahead of the tariffs. Under old management that would be scary. The new team seems quite competent. Both me and the Street will forgive a little inventory kerfuffle.
If Peloton can't get more apparel and decides to close its pointless stores I'll be almost giddy.
So the tariff doesn't scare me.
Investors need to see churn (the number of people who quit) stay low (under 2%). This is a hard time of the year for churn but that's the key to Peloton as an investment. Subscriptions kick off 68% margins and Peloton has 2.8 million of them. That's a good business once you have decent management and stop trying to be a growth company months after the fad is over.
Peloton has insanely low churn. Needs to keep it that way.
If the Churn stays low then the Margin motor stays in gear then we can combine it with Cuts to expenses and end up with actual Cashflow. Which is really what Peloton is about. Peloton is exceptionally close to reliably cranking out cash. Once it does it becomes a buyout target (there's no real growth, run it lean and collect dues.... this is much better as a Private Business).
Peloton has gotten hammered on the idea it would be impacted hard by Tariffs. I think it's overdone.
Trade: Staying long into earnings. Won't buy weakness just on technicals. Will update the fundamental picture tomorrow, immediately after Peloton reports.
