Peloton & Snowflake – Pandemic Pastimes.

Pandemic darlings tell different stories.

Peloton FQ4 24 – The turn

• Peloton reported revenues that grew YoY dispelling fears of the company being in a death spiral which, combined with finally breaking even on a cash flow basis, gives hope that the ship has finally stopped sinking.
• The result was a 35% jump in the share price but given how far the shares have fallen from their 2021 high of almost $175, this is a tiny blip that can hardly be seen on the chart.
• Q4 revenues / EPS of $643.6m / LOSS$0.08 ahead of estimates of $628m / LOSS$0.17 and guided for FQ1 25 broadly in line with expectations.
• The real surprise came in both operating profit where the company almost broke even and in operating cash flow which posted a $32.7m cash inflow for FQ4 24.
• These are strong signs of stabilisation which combined with subscribers remaining loyal to the company, allows the focus to shift to the future.
• This is where the recruitment of a new CEO (yet to be announced) will be crucial.
• Now that the company is generating cash, the question will be what to do with that cash as there is a strong argument for running the company for cash and giving it back to the shareholders.
• The subscriber business has 3m subscribers that generate $1.6bn in revenues from which the company earns 70% gross margins which with a hardware business that breaks even and modest OPEX, it is possible to value the company at around $8bn with no growth at all.
• Take off $1bn for the debt and one ends up with a per share valuation of $19 compared to $4.55 (after rallying 35% on August 22^nd).
• This all depends on hardware no longer draining the business of value and a greatly reduced operating expenditure both of which are now well underway.
• It also relies on the new CEO not making bad strategic decisions and wasting the value that is being generated by the subscription business as the original management did on hardware.
• However, with the biggest risk factors receding into the rear-view mirror, the possibility of a major rerating is now in the cards.
• I have a half position in Peloton and am considering adding some more here as even with the 35% rally, it is still below where I originally bought it.

Snowflake FQ2 25 – Not enough

• Snowflake reported good results but the weak guidance and the bad PR from the cyberattack suffered earlier this year meant that the shares sold off underlining that this remains one to avoid.
• FQ2 25 revenues / EPS were $869m / $0.16 broadly in line with forecasts of $851m / $0.18 but guided weakly for the coming quarter.
• Here FQ3 25 revenues are expected to be $850m – $855m which is below $899m which is what has triggered the latest disappointment in a company where the story is all about growth.
• This is because even excluding stock-based compensation, the company is still barely profitable despite an annualised revenue run rate of over $3.2bn.
• Hence, to generate value for shareholders it needs to have a much larger revenue base over which to spread its huge operating expenditure.
• The company does generate cash and so there are no fears of its solvency but it is more a question of what this business is worth.
• Even after falling 14.7% on August 22^nd, the market capitalisation of the company remains $38.4bn which when adjusted for net cash gives a FY 25 EV / Sales of 11.0x.
• This would be fine if the company were generating excellent profits and cash flow but this is far from the case as the FY 2025 PER of 191.7x clearly indicates.
• Hence, even without the stigma of a cyberattack and the possibility of being disrupted by generative AI, I would not be enticed to own this one.