The Capitalist Investor - Episode 102

Mark “Johnny Lawrence” Tepper is joined in this week’s episode by both Derek “Diamond Hands D” Gabrielsen and Luke “Cool Hands Luke” Lloyd for Episode #102. The guys tackle Peloton’s golden stock era and their recent drastic dip in demand and whether or not their new stock offerings are going to work out for the exercise company in the long run. What else can Peloton offer to its loyal base? This episode also includes some predictions on the future of electric vehicles as new motor companies enter the ring to compete with Elon Musk’s Tesla. Will there ever be a day when EV’s replace the sound of every roaring engine?

Outline of this Episode

  • [2:30] Peloton’s history of great highs and recent lows
  • [4:00] The thrill of Peloton’s share offering
  • [18:55] Electric vehicles, Tesla’s competition, the appeal

Is the Peloton craze over? Or will it work out with its stock offering?

When the pandemic hit and nationwide lockdowns closed us into our homes, it was nearly impossible to get your hands on dumbbells, weights and other at-home workout equipment. But through it all, Peloton kept on making those bikes. They continued to keep up with the increasing demand of at-home workout equipment and their stocks soared. Investing in Peloton last year was a revered move.

But now, gyms are open again and people are craving to leave their homes as much as they can –– the home workout craze is winding down, and so is Peloton’s earnings. After several unpromising quarters and sell-offs, Peloton suddenly announced that it will sell off nearly 24 million shares in a stock offering. The company intends to sell its common stock to the public to make off with nearly a billion dollars. But will it work?

Typically, when a company enacts a major stock offering the stock sells off and future investments don’t look too promising. But interestingly, Peloton’s stock popped 14 percent –– investors may truly believe Peloton can turn this capital around and soar again. Earlier this year, it was flying high and selling at nearly $167. During the offering, Peloton began trading their stock at around $50 until it bottomed out at $47. But it’s possible that investing in Peloton may be a promising venture and we have some confidence that if they exercise their potential correctly, the company can turn their revenues around.

Where else can Peloton perform for its loyal investors?

One of Peloton’s biggest pitfalls is that their product is just too good. They created a piece of hardware that outlasts any of its kind –– it’s a bike that’s built so well that it doesn’t need to be replaced, it has some years on it. When a product is too good, the market becomes oversaturated with it at some point –– and new demand flat lines. They need to create something new, a new source of revenue that can climb them out of their home workout hole.

Since their hardware is built to last, they have the potential to focus on a service-based revenue stream. Their hardware-based revenue is flattening out because people are no longer needing to buy at-home workout equipment as much anymore. Gyms are open again, people crave sociability –– Peloton needs to get away from just focusing on home-based gym products and think about providing their hardware services to gyms instead –– that’s where the people are. Imagine if your local Planet Fitness had Peloton bikes and in-person instructed Peloton classes.

Gym memberships are almost back to the rate in which they were at in 2019 before the pandemic. That’s where the people are, that’s where potential consumers are. But Peloton stocks and raising gym memberships are showing that those potential consumers aren’t too potential anymore. Instead, the potential lies in gyms themselves.

Peloton showed us that its stock was once beloved, but with their recent stock offering, it’s not so much anymore. But it can be. It may not rise to the levels it rose during the pandemic, but if Peloton decides to run away from its at-home workout focus and explore new revenue territories like selling to gyms or creating new products, they can fall back into place in the stock race once again.

There’s more demand competing in the EV market, but is there enough EV buyers?

Lucid Motors and Rivian are some of the newest car manufacturers that are trying to penetrate the electric vehicle market. But they’re missing one thing –– Elon Musk. We’ve said it before, Elon has a way of touching something and turning it into gold. Elon’s Tesla company will always have the first-mover advantage over any electric vehicle competitor. Tesla was the first to create a product that spiked the EV market and so far, they are the only EV producer to pierce through AI featured driving –– it’s imperfect but still ahead of Rivian and Lucid. Tesla was also the first company that inspired investor interests. Investors were willing to be patient with them –– it was a promising venture. But they’re not so willing with Tesla’s competitors.

The truth is, Rivian and Lucid don’t yet have the technology and potential that Tesla has –– Tesla is still the most technologically advanced competitor, they are years ahead of Bezos backed Rivian and Lucid Motors. If Rivian and Lucid want to compete next to Tesla, then they need to look at Tesla’s weakness: their cars just aren’t that physically appealing.

EVs have failed to live up to the sexiness of Ferrari’s or Porsches, both in appearance and engine roar. We believe that if Rivian and Lucid do produce EVs they will probably need to be much more physically enthralling than the look of the Tesla.

Beyond physical appearance, the issue with all of these cars, Tesla, Rivian and Lucid combined, is that they are six figure cars. Can the average person afford one? No and that’s a problem. The EV market is getting more saturated with competitors, but because they are so expensive, people are going to go for the alternative: a sweet gas-powered Mercedes.

EVs may be the new hottest thing, but they still have their downfalls like the need for electric charging stations and less mileage. Until they are cheaper and can go farther, people will continue to drive their internal combustion engines around.

We’ve been thinking about whether Rivian and Lucid’s participation in the EV market is just a small glimpse of the future. Democrats for a while now have been pushing along the notion of climate change and urging Americans towards electric vehicles. Will there ever be a day where gas-powered vehicles become obsolete? Tesla penetrated the EV world, but now with other companies in the picture, is this a sign that there will be a strong demand for EVs in the future?

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