November 17, 2021

Peloton asks for you to spare some change 💰

Good morning traders,

Welcome back to The Daily Setup. Markets were up yesterday. Here’s what’s on the docket today:

  • Peloton raises cash through stock sale
  • St. Louis Fed president urges central bank to speed up tapering
  • On Holding reports Q3 earnings and gains big

Let’s make today a good one.


On Holding, Peloton, and James Bullard


ON a Heater

Shares of ON Holding (ONON) had themselves a better Tuesday than you did. The running-shoe maker, which IPO’d in mid-September at $24/share and is backed by tennis star Roger Federer, nearly doubled its IPO price following the announcement of their Q3 earnings. The stock closed Tuesday’s trading session up 24.7%.

  • ON Holding benefited from the pandemic as more consumers took their fitness activities outdoors due to indoor restrictions.
  • Co-CEO and CFO, Martin Hoffman, said, “The third quarter of 2021 has been the strongest in the history of the Company in terms of net sales, gross profit, and adjusted EBITDA.”
  • Q3 recorded net sales of $235.5M (a 77% increase in the first 9-months of 2021), adjusted EBITDA of $40.8M, and gross margin of 60.2%.
  • ON also gave positive guidance for full fiscal year 2021, stating they expect net sales and adjusted EBITDA to come in at $764M and $99M respectively.

As with many foot fetishes footwear producers, ON may face supply chain issues as Vietnam, one of the leading global producers of shoes, just recently ended their manufacturing shutdowns. That said, holiday shopping is already underway and ON may continue to see a rise in their stock price as people purchase running shoes in the hope that this year their New Year’s resolution to exercise more will not fall by the wayside like they have for the previous decade. *fingers crossed*


Riding bikes and raising cash

Everyone’s favorite cult fitness equipment maker, Peloton, rallied Tuesday after announcing that they would sell roughly 23.9M shares of its Class A common stock at a public offering price of $46. This 3% discount to Monday’s closing price of $47.49 will net the company $1.07B. After initially selling off on the news, shares of PTON reversed course and finished the day up 15.5%.

  • Peloton benefitted about as much as any other company during the pandemic induced lockdowns of 2020. The stock finished the year up 396%, leading some people to wonder: Did Peloton start covid???
  • This year, however, with an easing of pandemic-related restrictions and people opting to ride bicycles outside, PTON is down nearly 65% as the company is seeing a slowing in the consumption of their products. Maybe they should model their next exercise bike off of this.
  • PTON’s struggles this year make today’s announcement a bit curious as most companies pursue stock offerings when their share price is rising.
  • The company said that they will use the proceeds for “general corporate purposes, construction or expansion of facilities, acquisitions, and investments in new products.” A treadmill that doesn’t hurt children would be a good start.

Two weeks after saying they “see no reason to raise additional funds,” the announcement of the stock offering has to give one pause when deciding whether to invest in the company. There may be more to this story over the next few weeks, so keep your eyes and ears open to any Peloton related news.


Bullard goes hawk 

On Tuesday James Bullard, president of the St. Louis branch of the Federal Reserve, urged the central bank to speed up the tapering process in order to combat inflation. In T. Bull’s ideal world, tapering could end and rate hikes could begin as soon as March 2022. Too bad we’re living in J-Pow’s.

  • Bullard’s comments may be a bellwether for the Fed despite their official position that this is still a temporary problem. People are calling for more aggressive action, and it’s kind of hard to argue that inflation is under control when it forces the IRS to revamp their tax brackets.
  • Nor does it help that the poorest Americans are realizing that inflation means Christmas is really gonna suck this year. Sorry tiny Tim. Pandemic relief has just expired for 7.5M people, many of whom already spend a third of their income on energy and food. Continued price hikes will hit these folks hard (and it doesn’t help that middle America has continued spending with all the cash that it’d saved up since the pandemic began.).

When a branch president publicly denounces Fed policy, real change is likely to follow. It doesn’t hurt that a whole bunch of other fat cats are on record agreeing with him. Another good sign for Bullard: the Fed left the door open for speeding up tapering, so they could alter their timeline without ever having to admit they were wrong. Keep an eye out for news of a change- it would likely boost market sentiment and spell sunnier forecasts for U.S. stocks.

Twitter Ruins Everything

Crypto Corner

Twitter (TWTR) reported $3.47B in cash at the end of Q3, but none of that will be flowing into cryptocurrency anytime soon. The company’s CEO, Ned Segal, said that holding crypto on the balance sheet “doesn’t make sense right now” because of volatility. The social media company prefers less volatile assets such as equities… right, tell that to $GME, $AMC, and $PTON.

  • Donny Deal’s favorite writing board recently created a crypto team to study ways to integrate digital assets into the company’s operations.
  • Currently Twitter allows users to send and receive tips in Bitcoin, which might be the main source of income for journalists given the state of the modern media landscape.
  • Rather than be subject to the ups and downs of the crypto markets, Twitter would rather focus on growing revenue via subscriptions. Subscriptions…for Twitter. Bold strategy Cotton.

Traders looking for companies with Bitcoin balance sheet exposure will still be limited to names like Tesla (TSLA) and MicroStrategy (MSTR), and will have to treat Twitter as a pure play on its core business: apes flinging feces at each other 240 characters at a time.

The Mall is Dead, Long Live the Mall

Rumor has it

The death of one of America’s great institutions (and the go-to place for teens in my town) may be greatly exaggerated. As society emerges from our collective house arrest, shoppers may indeed be eager to head back to the mall, where the deals flow like Orange Julius and it’s always buy one get one free at Bath & Body Works. If traffic picks up, malls may be in for a renaissance and once again be part of the zeitgeist, like they were when Tiffany was belting out “I Think We’re Alone Now” at food courts across this great land.

  • A recent Barron’s piece highlights that some stores, such as Macy’s (M), and Signet Jewelers (SIG)) have seen over a 200% increase in stock price over the past 12 months.
  • Another way to look at a potential mall resurgence is through Simon Property Group (SPG), the company that owns malls, and is up over 90% YTD.
  • The upcoming holiday season could be another catalyst for mall-based businesses because it’s not Christmas until you’ve made a last-minute dash grabbing things from Brookstone and Hickory Farms of Ohio.

The dueling forces of pent up demand and inflation will be fighting it out over the coming weeks and malls across America could be ground zero. The Barron’s piece also references a survey of 1,000 shoppers, of which 55% of the 14-17-year-old group say they currently shop at indoor malls, and 90% of them plan to do so in the future. After all, teenagers trolling the mall awkwardly trying to attract peers of the opposite sex is a tradition that will never die.

Jeff Bishop

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