Peloton: The market's unhealthy infatuation with overhyped technology
Peloton is one of those IPOs with chronic accounting problems. Why does the SEC allow companies to keep going on like everything is ok when clearly it is not?
Can we finally declare the era of over-hyped technology driven companies to be at an end?
If only… But every once in a while we see one that runs out of steam. The latest seems to be Peloton.
Peloton’s problems might surprise some spectators or investors, but for at least one short seller this should be no shock.
December 10, 2019
SAN FRANCISCO (Reuters) - Shares of Peloton Interactive <PTON.O> tumbled over 6% on Tuesday after noted short seller Andrew Left valued the seller of stationary exercise bicycles at about one seventh of its recent stock price.
Left's Citron Research warned that the Peloton's bikes, priced at over $2,200, and its streaming exercise video service face competition from aggressive, cheaper rivals. It predicted Peloton's stock would fall to $5. The stock dropped $2.32 to $32.45 following the report.
(This same short seller can also feel vindicated about another major fraud he called early.)
Peloton puts out two contrasting stories. One provides positive hype, the other does mention the warnings many market participants overlooked.
The stock price is down by over 90% from 2021. The company CEO announced his resignation.
The most recent earnings report did not help much.
Nor did this lawsuit related to employee stock options or other legal struggles with the SEC, DOJ, DHS and Consumer Product Safety Commission relieve any anxiety.
Moreover, Peloton announced the layoffs of more than 15% of the company.
May sound like a pile on for Peloton but Google Search Trends data shows that periods of hype often foreshadowed trends in Peloton’s stock price.
Until recently, Peloton is a textbook case of hype outperforming financial fundamentals. Using sentiment analysis, we see Peloton positive sentiment (green below) outpacing negative (red below) from the end of 2018 to the end of April 2024. Furthermore, mentions related to Peloton spiked particularly during the pandemic which comes close to coinciding with its post-IPO peak.
