Best Stocks to Buy Right Now: Peloton vs GoPro

There is one unfortunate similarity between exercise equipment manufacturers. peloton (PTON 9.43%) And the camera maker gopro (GPRO 0.52%) – Their stock has lost a huge amount of value over the past few years. GoPro performed “better” and was only down about 85% from its 2021 high. What’s going on with these two companies and is it worth stepping in to catch one of the falling blades?

GoPro and Peloton: More Similarities

On the surface, GoPro and Peloton seem like completely different companies. GoPro’s cameras are nothing like Peloton’s exercise equipment. But if you take a step back and think about it from a company perspective, they’re both focused on making niche devices. Peloton’s gear appeals only to exercisers, while GoPro’s ultra-powerful cameras are primarily used by people who do extreme things (and those who want to film them). In some ways, it would seem like a better fit if these consumer discretionary companies were part of a larger conglomerate because it would add more variety to their product lineup.

There are other interesting similarities in the business model changes both companies are undergoing. Selling devices is fine, but the results may not be great. When Peloton’s connected exercise bikes were all the rage, the company couldn’t keep up with demand and created waiting lists. Now that the fad is over, demand levels are no longer the same. GoPro’s devices are a bit more niche, but they still have to deal with product cycles (a new camera can spike sales over time and then fade away over time) and seasonal demand changes (the holiday season) .

To help smooth financial performance, both companies are attempting to build subscription-based businesses. Peloton’s service is essentially an online exercise service. A GoPro subscription gives you access to storage and editing tools. The advantage for each company is that subscriptions provide consistent revenue. Subscriptions offer much higher margins because the technology used to power them is leveraged across multiple customers and adding new customers incurs minimal additional costs.

GPRO data from YCharts

It goes further, but it doesn’t get any better.

Peloton is making a subscription transition because its exercise equipment has always had a subscription component. Nearly 60% of the company’s revenue comes from subscriptions. But there is a subtle difference. That’s because the company’s latest push is to offer subscriptions through an application that don’t require purchasing physical equipment. In the third quarter of fiscal 2024, app subscriptions decreased 21% year over year and down 6% sequentially from the second quarter of fiscal 2024.

The app has fewer than 700,000 subscribers, while the subscription service connected to the device has about 3 million subscribers. Device-related subscription figures were flat year-over-year in the fiscal third quarter and increased 1% sequentially. This suggests a stagnant core business while new businesses expected to deliver growth struggle to gain traction.

By comparison, GoPro’s subscriber base grew 12% year-over-year in the fourth quarter of 2023, and has also grown slightly on a rolling quarter basis. This service has proven to be quite sticky, with a first-year renewal rate of around 60%, a second-year renewal rate of around 70%, and a third-year renewal rate of around 80%. The problem is that the company estimates subscriptions will account for about $125 million of the company’s annual revenue, which will generate about $1 billion in revenue in 2023, making this business segment about 13% of the total. That said, often-flaky camera sales are still the big driver here.

GPRO EPS Diluted (Quarterly) Data by YCharts

The final important part of the comparison is the simple fact that GoPro has been essentially breaking even for years, while Peloton has been losing a significant amount of money. While this isn’t an attractive selling point for either company, GoPro appears to be operating in a stronger position than Peloton, both financially and in terms of subscriptions. Notably, Peloton just announced massive layoffs and is parting ways with the CEO who has been overseeing its subscription drive without a permanent replacement ready to step in.

If one or the other, which is better?

Ultimately, most investors will want to avoid both Peloton and GoPro. These are high-risk companies undertaking significant business transitions that are significant but clearly not complete. Still, GoPro’s efforts appear to be getting better, so investors with significant risk tolerance may have an edge over Peloton. Understand that each of these companies still needs to demonstrate that their improved business model will lead to sustainable success.