Two months after its late-September IPO, Peloton stock was riding high.
It was trading at new highs above 36, 27% higher than its IPO price (29) and 75% higher than its late-October nadir at 21. Nothing could slow Peloton’s (PTON) meteoric rise, it seemed. Then its own marketing department intervened.
About a week ago, Peloton rolled out a new 30-second commercial plugging its revolutionary stationary bike with a built-in screen that allows users to stream and participate in live spinning classes held in the company’s fitness studios. The ad…didn’t go over well.
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It depicts a beautiful, thin woman receiving a Peloton as a Christmas gift from her husband, and documenting her experience trying to “get in shape” over the course of a year—riding her Peloton virtually every day and taking videos of it on her phone, including a video thanking her husband for getting her a gift that changed her life.
Public outcry followed. Some interpreted the message as being the husband telling his already in-shape wife to get in better shape. Others cited the stressed, at times terrified look on the woman’s face as troubling—that she appears to be a prisoner to this new gift, not wanting to disappoint her demanding husband.
If you haven’t seen the commercial, Google it. I’ll let you decide how you feel about it.
Here’s how Wall Street felt about the ad: Peloton stock fell 15% in three days. Investors frequently get scared off by bad publicity. And the outrage against Peloton for its “insensitive” ad had reached a fever pitch.
But I’m here to tell you that the Peloton ad (however you interpreted it) was a good thing, for two reasons: 1) you know what they say about bad publicity, and 2) Peloton stock was due for a correction.
The commercial may not have been a great look for the company. But a lot more people are aware of Peloton now. The commercial, titled, “The Gift that Gives Back,” has 6.8 million views on YouTube. After the initial backlash, many have rushed to Peloton’s defense, saying the ad is promoting good health and fitness—nothing more. I’m guessing a lot of those people had never heard of Peloton until a week ago.
Some of the people who viewed the ad to see what all the fuss was about will probably buy a Peloton (though perhaps not for their spouse). With holiday shopping season in full swing and the New Year’s resolutions to get in shape right around the corner, the timing of all the publicity is perfect for Peloton.
As Warren Buffett says, “Bad news is an investor’s best friend.”
Good Entry Point for Peloton Stock
So, with the stock knocked back a bit, and a potentially monster quarter coming, now seems like the ideal time to buy PTON. In fact, people already are—the stock has recovered more than half its losses in the last two trading sessions.
Aside from the commercial, there are other question marks about Peloton that are typical of a young public company. It’s not close to profitable. Lockup expirations aren’t until late March. And it’s a relatively volatile mid-cap stock ($9.7 billion market cap).
But with $1 billion in sales over the last 12 months and $1.5 billion expected in 2020, this is a growing company. The Christmas ad may have brought a lot of negative attention. But it brought a whole of attention.
A year from now, it will likely be forgotten. And my guess is, Peloton’s share price will be higher.
Like the woman in the ad, Peloton stock was already in good shape. But this controversy might get it in even better shape.
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