Interesting reading $PTON initations claiming that they "offset CAC with GM's on product sales". 1) Is it really "offsetting" if 70% of your business is product sales? 2) in a product business, we don't say covering your S&M costs with GM is "offsetting CAC"...

For argument's sake, they target 1.5% monthly churn, so 18% annual = 5.5 life @ $39/month with a ~60% incremental GM = $280/year in GM x 5.5 = ~$1400 in undiscounted LTV from a sub.

Comp that to the bike at $2950 @ ~45% GM's = $1325.

So basically the bike sale is 1/2 the LTV.

The argument that this is a subscription business doesn't really make sense given 1/2 the LTV is from the upfront product sale... And no, financing it at 0% for 39 months doesn't count as "recurring revenue".

It's also worth noting that ~50% of customers (according to JPM) are using the financing option @ 0% APR.

So part of $PTON's competitive advantage is cost of capital.

They claim they're a subscription company but really this is just economies of scale at work.

They pay instructors ~$60k a year: https://www.paysa.com/salaries/peloton-cycle--instructor#:~:text=The%20average%20Peloton%20Cycle%20Salary%20for%20Instructors%20is%20%2455%2C986%20per%20year, but only need ~34 of them. THAT has scaled very nicely.

BMO on Churn. $PTON LTV math doesn't pass the smell test at all,yet is regurgitated all the time. Also neglects the impact on bigger newer cohorts with lower churn that improves churn metrics.

BMO also points out prepaids are not ABLE to churn, so including them is a bit disingenuous.