Alan's Angle
I think that Tonal is in some serious trouble, specifically, when you compare it to Peloton.
From a business perspective that is. I do think the product itself is sweet.
Of course, this is my opinion and a lot of inferences need to be made due to the fact that Tonal is private, but here is my read.
Tonal is trading @ 19x forward ARR. Peloton? 9x trailing ARR.
I think that Tonal’s valuation is being protected significantly by its investors and the fact that they are privately held. This company has no business trading @ an ARR multiple of more than 2x the size of Peloton as I feel Tonal has more challenges than $PTON.
First, let's look at the pricing models of the two companies:
- Peloton: $1,445 for the product & $44 a month
- Tonal: $3,495 for the product & $49 a month
Tonal is more than 2x as expensive for the product itself than Peloton's. This limits Tonal’s TAM significantly to the highest of the middle class and upper class while Peloton can tap into a much greater portion of the middle class.
Another red flag?
Just look at how much cash Tonal has burnt through in producing their machine. I would think that margins on the device itself are very low as the company likely looks to create value through accruing significant ARR. During the supply chain issues, I would not be surprised if margins even went negative like we saw with $PTON. Burning as much cash Tonal did and needing to raise in an environment like this shows that the unit economics are pretty rough.
Additionally, people are really looking to spend less time at home and more time returning IRL gyms and most definitely are not looking to spend $3.5K for an at home machine.
Planet Fitness, although a very different clientele, represents the trends of the masses as they have seen revenue grow by 64% & 67% YoY in the past two quarters as pointed out to me by Paul Cerro of Cedar Grove Capital.
Also what are a couple of components to the business that $PTON has that Tonal does not?
- Second stream of subscription revenue
- A cult like movement with serious brand affinity and loyalty
Specifically, regarding the first point, Peloton has a $12.95 monthly subscription that gives you access to an app where you can access a plethora of exercise and workout classes even if you do not have a Peloton.
An app which my father is a big fan of #stretchingclass.
This alternative source of revenue that could attract a wider range of people is something that Tonal should definitely look into.
In my eyes, it is crazy that just a week ago $PTON and Tonal were valued at virtually the same price. It will likely take a couple of years for the public/private markets to realign, however, I would definitely have my money with Peloton in the long run.
Get pumped for Tuesday as we will be doing a deep dive in Liquid Death and their recent raise!
-Alan
