Should You Pick This Former Weight Loss Player Over Peloton Stock?
WWe believe Peloton Stock (NASDAQ: PTON), a home fitness company that sells connected exercise bikes and treadmills, and associated fitness subscriptions, is currently a better choice over WW International Stock (NASDAQ : WW), a company best known for its weight loss and fitness services, despite Peloton’s richer valuation multiple. While Peloton is trading at around 5.8 times trailing revenue, WW International is trading at around 1x trailing revenue. In addition, Peloton has yet to make an annual profit, compared to WW International, which has been almost always profitable. However, there is more to the comparison. Let’s go back to take a closer look at the relative valuation of the two companies by looking at historical revenue growth as well as operating margin growth. Our dashboard Peloton Interactive vs WW International: industry peers; Which action is a better bet? has more details on this. Parts of the analysis are summarized below.
1. Peloton’s revenue growth has been stronger
Peloton’s revenue grew about 54% year-on-year in the last quarter (Q4 FY’21) to around $ 937 million, which is well ahead of WW International which saw revenue decline -7% compared to his last trimester. While Peloton continued to benefit from strong demand for its fitness equipment and an improved product offering, WW is experiencing a decline due to a difficult comparison with last year and a decline in its Fitness Studio business, which saw its subscriber base drop nearly 30% from last year. Peloton’s historical average growth rate has also been higher and more consistent. For example, Peloton has roughly doubled its revenue every year for the past three years, while WW International’s revenue has grown at a compound rate of less than 2% over the same period.
Looking ahead, Peloton’s revenue is expected to grow 30% year-on-year to $ 5.2 billion in 2022, while WW is likely to experience a decline of -5%, according to our estimates. Our WW International Revenue dashboard provides more information on the company’s revenue.
2.WW has thicker margins, but Peloton shows better margin growth
Peloton remains in deficit, with operating margins of around -5% over the last financial year. In comparison, WW International has posted margins of around 15% over the past 12 months. However, Peloton’s margins tend to increase steadily. If we look at the latest change in operating margin over three years, Peloton’s margins improved further, up about 17%, compared to WW’s margins, which fell by -10%.
Looking ahead, Peloton is likely to experience some margin pressure in the near term, due to higher marketing spend and lower price realizations on some products due to recent price cuts. On the flip side, WW International could benefit from its growing digital push and perhaps growing interest in its physical locations as the economy continues to reopen after Covid-19. That said, we still believe Peloton’s margins have more long-term benefits given its digital services business, which has lower direct costs and greater profit potential as revenue grows.
The net of everything
Now that more than half of the U.S. population is fully vaccinated against Covid-19, with a pickup in overall economic activity, demand for home-trend-oriented leisure products is expected to cool a bit. However, both companies have some bright spots to look forward to. Peloton, for example, is focused on expanding into commercial areas and acquiring new customers through its corporate wellness program and through agreements with healthcare companies. WW International, despite recent headwinds, could also see a resumption of its Studio business, which accounted for nearly half of its subscription revenue before the pandemic.
Although WW International’s current valuation is much lower than Peloton’s valuation, with Peloton trading at 5.8x trailing revenue, against WW at around 1x, we believe Peloton justifies this premium due to its higher growth rates. strengths and long-term margin potential. Peloton also has lower financial risk, with its debt as a percentage of market cap standing at 3%, compared to WW which has debt at a market cap of around 115%. Although Peloton has been labeled a ‘pandemic stock’, we believe the company and its business will prove to be resilient, given its strong foreclosure from consumers via hardware, expansion into international markets, and the launch of more affordable products. . Peloton stock has also remained down around 46% since mid-January, potentially presenting a good entry point for investors.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.