We are initiating coverage of Peloton Interactive (PTON), an at-home fitness equipment company; the company has posted strong revenue growth over the past few years by capitalizing on consumer trends that favor personal privacy and interactive technology, explains Jim Kelleher, an analyst with Argus Research.
Peloton Interactive calls itself the largest interactive fitness community in the world, based on its “community” of more than 1.6 million members. As a technology company, Peloton seeks to mesh the physical and digital worlds to create an immersive and connected fitness experience.
In our view, the company has a number of competitive advantages, including its early-entrant status and brand awareness in technology-enabled fitness; its ability to provide streaming instructor-led classes to members anytime and anywhere; and its development of well-made, intuitive equipment, interactive software, and original programming.
The company also has a go-to-market model featuring both direct-to-consumer and multichannel retail; a growing platform with positive network effects; and a unified strategy to make fitness entertaining, approachable, effective, and convenient.
Looking beyond Peloton’s favorable business fundamentals, we are also optimistic about the technical picture. Shares of PTON have skidded 15% since December 2 due to a marketing campaign that fell flat and was subsequently mocked on social media.
At the same time, the media attention has increased Peloton’s profile and may ultimately prove beneficial to sales. As such, we view the recent decline as a non-fundamental pullback that offers potential investors a favorable entry point.
For a still unprofitable company such as Peloton, our valuation model relies on price/sales multiples and related valuation methods. Our blended valuation is in the low $40s. As such, we are launching coverage with a near-term "buy" rating and a target price of $40.
