Why Peloton’s TikTok Rally Doesn’t Fit
Wall Street traders need to exercise their brains a bit more. Peloton shares jumped 14% on Thursday after the struggling fitness firm struck a deal to put its workout videos on TikTok. Sure, associating with TikTok can help almost anything and anyone seem cool with the kids. But investors seem to be misreading this situation. The “exclusive partnership,” as Peloton called it, is essentially a giant ad on TikTok for the fitness firm. It’s designed to get people to download the Peloton app, where they’ll hopefully go on to sign up for a paying subscription.
But even if they do download the app, there’s no guarantee they’ll subscribe. And as there are already lots of workout videos on TikTok, not to mention other similar apps such as YouTube, it’s hard to see why this new fitness hub featuring Peloton content will move the needle for the fitness company. Sure, it makes sense for Peloton to advertise its app on TikTok, given its enormous reach. As Oli Snoddy, Peloton’s vice president of consumer marketing, told CNBC, TikTok “increasingly reaches everyone, including the younger audience.” But that is hardly worth the $270 million in additional market capitalization that resulted from the stock jump. You could make the opposite case: that the chances this ad doesn’t generate enough paying subscribers to cover its cost should mean investors sell their Peloton shares.
After all, Peloton's stock is not cheap, at least compared with media stocks—and it has to be compared with media stocks. CEO Barry McCarthy has made it clear he sees Peloton’s content as its most powerful asset, and subscriptions to that content account for 70% of its revenue. Most of the subscriptions are for people using Peloton equipment, a number that isn’t growing, so Peloton is pinning its growth hopes on its revamped app, which offers workout videos for anyone, regardless of whether they own Peloton equipment. It’s too early to say whether the app will prove to be a growth driver for Peloton. For the year to June, the company has forecast flat or slightly down revenue.
In other words, Peloton doesn’t deserve a Netflix-type multiple. Instead, it should be valued in line with Paramount Global and Warner Bros. Discovery, two TV companies that are also not really growing. They’re trading at an average of 1.25 times forward sales, according to Koyfin. Peloton is now trading at around 1.4 times forward sales. It’s not a huge difference, to be sure. But it does suggest investors are getting this one wrong.
Tracking Amazon’s Headcount
It’s no secret that investors have lacked an easy way to track the nuances of Amazon’s hiring. The e-commerce and cloud giant added roughly a million workers between the end of 2017 and the end of 2022, thanks to the pandemic. Amazon has said it finished 2022 with 1.54 million employees. But that number includes warehouse workers and other blue collar employees, making it difficult for outsiders to compare the number to the mostly white collar workforce of other tech firms where software engineers and marketing folks dominate.
Amazon has rarely given any insight into the composition of its white collar workforce, but today The Information provided a look into that part of the company’s headcount. The story reveals that Amazon’s corporate workforce more than tripled over five years to reach 415,000 by the end of 2022, which is a higher rate of growth than for the overall workforce. All of a sudden, the layoffs that trimmed the corporate staff somewhat in the past year make a lot more sense.