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You need to have stronger argument not just reciting facts, ie revenue of this etc, need to say believe has moats around business and high short interest make attractive long right now or take bearish side, that company is fad and too expensive for larger addressable market.The words in red color in first file are examples.Each argument is about 40 words, 120 words total. one_page_company_tearsheet__1_.docx pdfloader.aspx.pdf citron_research_presents_peloton_investors_pedaling_themselves_into_frenzy.pdf Unformatted Attachment Preview Quick View Electric Vehicle ElectraMeccanica (SOLO) Impeccable Design Meets Future-thinking Innovation Price $6 Market Cap $147M Electra Meccanica designs and manufactures high-performance, innovative electric vehicles. The company builds the all-electric SOLO, a revolutionary three-wheeler that makes commuting more efficient, cost-effective, and eco-friendly. Electra Mecccanica partners with Zongshen Power Machinery Co., Ltd. to meet the future manufacturing needs. Cap Price Volume Graph Vertically integrated Electric Vehicle (EV) manufacturer Electra Meccanica recently acquired Intermeccanica International Inc. (IMI). This deal brings IMI’s expertise in car design to improve the Company’s research and development capability. Moreover, this acquisition allows the Company to leverage IMI’s current production capacity and sales force, making it better positioned for market expansion. Anticipating commercial production of SOLO in near future The Company’s signature product, SOLO, is scheduled to enter commercial production phase in 3Q18, ensuring investors and potential customers that the Company has large-scale production capability. The manufacturer Zongshen guarantees a total delivery of 75,000 SOLOs in the next three years. This resolves one of the bottlenecks – limited production capacity – that persists in many EV companies. Code Unique positioning within the EV industry Shares in issue From Tesla in the U.S. to Nio in China, most EV companies target wealthy households as their products often carry a premium on price. With a price tag starting from US$15,888, Electra Meccanica’s product line targets a different customer base than most EV manufacturers. Therefore, the Company has little competition from the EV industry. Positive news attracts investments for the Company Investors’ choice in the EV market is limited as there are only a few EV companies listed. Electra Meccanica’s recent Carshare Partnership with Harbour Air, North Americas Largest Seaplane Operator, makes it stand out amongst its peers, putting forth Electra Meccanica as an alternative option amid Tesla’s possible privatization. Share Details Listing SOLO NASDAQ 24.56M Business Description Electra Meccanica is a development-stage electric vehicle, or EV, manufacturing company located in Vancouver, British Columbia, Canada. Their initial product line targets urban residents seeking to commute in an efficient, cost- effective and environmentally friendly manner. Add applicable from company investment deck here with source at bottom Disclosures Diamond Equity Research, LLC has created and distributed this report. This report is based on information we consider reliable, including the subject of the report, but have not been provided any non-public information. This report does not explicitly or implicitly affirm that the information contained within this document is accurate and/or comprehensive, and as such should not be relied on in such a capacity. All information contained within this report is subject to change without any formal or other notice provided. Diamond Equity Research, LLC is not a FINRA registered broker/dealer or investment adviser and does not provide investment banking services. 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Additional information is available upon request. For further questions, please contact research@diamondequityresearch.com Peloton Consumer adoption cycling in the right direction; Buy Reiterate Rating: BUY | PO: 30.00 USD | Price: 22.74 USD Equity | 05 November 2019 Strong Q with rev. and outlook better than expected Revenue of $228mn (+103\% y/y) was much higher than the Street at $199m, with the IPO likely having a small benefit. Adj. EBITDA at a loss of ($21mn) was better than the Street at a loss of ($81mn) due to better gross margins and lower opex. 2020 revenue outlook at $1.45-1.5bn, and EBITDA loss at ($170-150mn) were better than the Street at $1.39bn/($272mn). Overall it was an upside quarter, highlighted by solid subscriber growth, low monthly net churn, and hardware cost efficiencies that suggest little impact from competition. Subscriber traction continues, acquisition model working Connected Fitness Subs. came in at 563k (up a strong 103\% y/y) slightly above the Street at 560k. Monthly net churn was 0.90\%, up 11bps q/q, but below our 0.99\% est., mainly driven by rolling off of prepaid subscriptions. Monthly churn is expected to increase to 1.05\% for both F2Q and 2020, driven by higher free home trial returns, but it should remain well below most subscription services that can range from 2-3\% per month. Marketing costs at $74mn were just above connected fitness product gross profit at $70mn, suggesting the acquisition model is working with low net subscriber add costs. Raising revenues and EBITDA estimates for ’20 and ‘21 We are raising FY2020E revenue to $1.49bn from $1.36bn and increasing EBITDA to ($156mn) from ($262mn), as we expect Peloton to gain cost efficiencies as it scales over time. We continue to anticipate that FY20 will be a peak loss year, and we raise FY21E rev. to $2.19bn from $2.02bn, and EBITDA by $76mn to a loss of ($153mn). Peloton reiterated that the US bike business is profitable, and investments in studios, the German launch, and new products are expected to be growth drivers in future years. Strong start in first public quarter; raising PO to $30 While F2Q outlook suggests deceleration in revenue growth on tougher comps (as expected given the Intl. and tread launches last year), F1Q results reaffirmed our positive views on Peloton’s execution, long-term adoption curve and potential for earlier-than-expected profits. Importantly, we are not seeing unexpected pressure on subscriber adds (120k adds expected in F2Q) due to new competition, which could be the biggest near-term concern for the stock. Based on higher estimates, we are raising our sum-of-the-parts based PO to $30 from $29 and reiterate our Buy rating. Estimates (Jun) (US$) EPS GAAP EPS EPS Change (YoY) Consensus EPS (Bloomberg) DPS 2018A (0.84) (2.19) 44.7\% 2019A (2.97) (8.54) -253.6\% 0 2020E (0.70) (1.37) 76.4\% (1.23) 0 2021E (0.49) (1.41) 30.0\% (1.34) 0 2022E 0.03 (1.37) NM NA 0 0 2018A NM NM 0\% NM 2.2\% 2019A NM NM 0\% NM -19.4\% 2020E NM NM 0\% NM -45.9\% 2021E NM NM 0\% NM -26.1\% 2022E 758.0x NM 0\% 25.5x 3.4\% Key Changes (US$) Previous Price Obj. Current 29.00 30.00 2020E Rev (m) 1,356.4 1,491.6 2021E Rev (m) 2,022.3 2,194.4 2022E Rev (m) 2,937.8 3,213.3 2020E EPS -0.97 -0.70 2021E EPS -0.76 -0.49 2022E EPS -0.35 0.03 Justin Post Research Analyst BofAS +1 415 676 3547 justin.post@bofa.com Joanna Zhao Research Analyst BofAS +1 415 676 3560 jzhao@bofa.com Stock Data Price 22.74 USD Price Objective 30.00 USD Date Established 5-Nov-2019 Investment Opinion 52-Week Range Mrkt Val (mn) / Shares Out C-1-9 20.46 USD - 27.98 USD 988 USD / 43.4 (mn) Average Daily Value (mn) BofAML Ticker / Ex change Bloomberg / Reuters NA PTON / NAS PTON US / PTON.OQ ROE (2020E) -19.1\% Net Dbt to Eqty (Jun-2019A) -40.3\% Valuation (Jun) P/E GAAP P/E Div idend Yield EV / EBITDA* Free Cash Flow Yield* * For full definitions of iQ method SM measures, see page 10. BofA Merrill Lynch does and seeks to do business with issuers covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. Refer to important disclosures on page 11 to 13. Analyst Certification on page 8. Price Objective Basis/Risk on page 8. 12062722 Timestamp: 05 November 2019 07:03PM EST W iQprofile Peloton SM Company Sector Internet/e-Commerce iQmethod SM – Bus Performance* (US$ Millions) Return on Capital Employ ed Return on Equity Operating Margin Free Cash Flow 2018A -13.6\% -17.1\% -4.1\% 22 2019A -19.9\% -27.6\% -8.2\% (192) 2020E -13.0\% -19.1\% -11.6\% (453) 2021E -8.7\% -12.6\% -7.0\% (258) 2022E 1.6\% 0.9\% 0.7\% 34 2018A NM 4.2x NM -166.2\% NA 2019A NM 3.8x NM -40.3\% NA 2020E NM 4.6x NM -81.7\% NA 2021E NM 1.2x NM -73.0\% NA 2022E 10.6x 0.8x NM -78.9\% NA iQmethod SM – Quality of Earnings* (US$ Millions) Cash Realization Ratio Asset Replacement Ratio Tax Rate Net Debt-to-Equity Ratio Interest Cov er Income Statement Data (Jun) (US$ Millions) Sales \% Change Gross Profit \% Change EBITDA \% Change Net Interest & Other Income Net Income (Adjusted) \% Change Free Cash Flow Data (Jun) (US$ Millions) Net Income from Cont Operations (GAAP) Depreciation & Amortization Change in Working Capital Deferred Tax ation Charge Other Adjustments, Net Capital Ex penditure Free Cash Flow \% Change 2018A 435 99.0\% 208 128.1\% (30) 41.5\% 0 (18) 55.7\% 2019A 915 110.3\% 416 100.2\% (71) -135.7\% 7 (68) -269.3\% 2020E 1,492 63.0\% 652 56.7\% (156) -118.3\% 15 (157) -130.5\% 2021E 2,194 47.1\% 943 44.7\% (153) 1.6\% 13 (144) 8.1\% 2022E 3,213 46.4\% 1,425 51.0\% 22 NM 13 9 NM 2018A (48) 7 82 NA 10 (28) 22 NM 2019A (196) 22 (23) NA 88 (83) -192 NM 2020E (307) 47 (77) NA 98 (215) -453 -136.4\% 2021E (414) 70 (40) NA 207 (81) -258 43.0\% 2022E (417) 84 58 NA 372 (63) 34 NM Balance Sheet Data (Jun) (US$ Millions) Cash & Equiv alents Trade Receivables Other Current Assets Property , Plant & Equipment Other Non-Current Assets Total Assets 2018A 151 9 44 36 31 271 2019A 162 19 401 250 33 864 2020E 1,015 26 244 272 633 2,190 2021E 756 38 359 294 368 1,815 2022E 789 55 431 253 165 1,694 Short-Term Debt Other Current Liabilities Long-Term Debt Other Non-Current Liabilities Total Liabilities 0 170 0 10 181 0 291 0 171 462 0 369 0 578 947 0 474 0 306 779 0 600 0 94 694 Total Equity Total Equity & Liabilities 91 271 402 864 1,243 2,190 1,036 1,815 1,000 1,694 Company Description Peloton is the largest Global interactive fitness platform with a community of over 1.4 million Members. The company offers workout Bike and Tread which include a touchscreen that streams live and on-demand classes for indoor cycling, running, walking, bootcamp, yoga, strength training, and meditation. The company serves customers in the U.S., Canada, UK, and Germany. Investment Rationale Peloton offers an integrated solution that capitalizes on several growth trends including inhome fitness/health, subscription services, and ondemand streaming. We are constructive on large addressable market, high user retention, attractive customer acquisition model and long-term margin benefit from subscription mix shift. We think Pelotons high quality product and high subscription profitability potential with network effects warrant a premium valuation multiple to the broader comp group. Stock Data Average Daily Volume NA Quarterly Earnings Estimates Q1 Q2 Q3 Q4 2019 -0.43A -0.63A -0.55A -1.06A 2020 -0.52A -0.26E -0.10E -0.12E * For full definitions of iQ method SM measures, see page 10. 2 Peloton | 05 November 2019 W F1Q Summary Revenue of $228mn was higher than the Street at $199mn and decelerated modestly to 103\% y/y vs 110\% in F4Q. Peloton highlighted an effective marketing campaign highlighting its financing program as a driver. Connected Fitness Product revenue of $158mn (+102\% y/y vs 104\% in F4Q) was better than our est. at $131mn, while Subscription revenue of $67mn (+112\% y/y) was above our est. at $63mn (+100\% y/y). Adjusted EBITDA at a loss of ($21mn) was much better than the Street at a loss of ($81mn). Peloton’s F2Q/2020 revenue outlook was $410-420mn/$1.45-1.5bn, above the Street at $397mn/$1.39bn, while adj. EBITDA guidance of losses of ($70-$65mn)/($170-150mn) was also better than the Street at ($86mn)/($272mn). EBITDA losses are expected to be $100mn less this year on product cost improvements and other opex efficiencies vs plan. Overall it was an upside quarter, highlighted by solid subscriber growth, low monthly net churn, and hardware cost efficiencies that suggest little impact from competition. Peloton reported 563k Connected Fitness Subscribers (+103\% y/y), above the Street at 560k. Monthly net churn was 0.90\%, up 11bps q/q, but below our 0.99\% est., mainly driven by rolling off of prepaid subscriptions. Monthly churn is expected to increase to 1.05\% for both F2Q and 2020, driven by higher free home trial returns, but should remain well below most subscription services that can range from 2-3\% per month. In F1Q, net customer acquisition cost (CAC) was $69m (S&M expense less Connected Fitness Product gross profit), which compares to an estimated $2,734 lifetime value (contribution profit from expected duration of subscription payments based on current churn), suggesting a 39x LTV/net CAC. Connected Fitness Product gross margin (GAAP) held steady at 43\% in F1Q vs F4Q, better than our est. at 32\%, while F2Q/2020 guidance of 37-38\%/38-39\% was better than our est. of 34\%/35\%. Margin declines are attributable to the continued mix shift of sales to tread and continued investments to scale the supply chain and logistics platform to meet high sales demand during holiday season. Subscription contribution margin (GAAP) was up from 60\% in F4Q to 63\% in F1Q and was guided to 58-59\%/6061\% for F2Q/2020 (in line with our ests.). Overall gross margin (GAAP) was 46.1\%, up from 44.8\% in F4Q and was guided to 39-40\% for F2Q (vs our est. at 42\%) and 41-42\% for 2020 (in line with our est. at 42\%). Management commented that the acquisition of Tonic, a Taiwan-based bike manufacturing partner, as part of vertical integration, would help to leverage cost efficiencies and thus benefit the Connected Fitness Product gross margin over time. While F2Q outlook suggests deceleration in revenue growth on tougher comps (as expected given the Intl. and tread launches last year), F1Q results reaffirmed our positive views on Peloton’s execution and long-term adoption curve. Importantly, we are not seeing unexpected pressure on hardware margins or subscriber adds (120k adds expected in F2Q) due to new competition, which could be biggest near-term concern for the stock. We also think there is likely some conservatism built into guidance based on upside reported in F1Q. Longer term we are constructive on the large fitness TAM (total addressable market), high user retention, and long-term margin benefit from the subscription mix shift. With losses expected through 2022, we think this is a longer-term call subject to added volatility as emerging and aggressive competition shape the at-home fitness sector. Based on higher revenue estimates and growth outlook, we are raising our PO to $30 from $29, which is based on an unchanged 10.0x EV/gross profit multiple for subscription segment (vs peer median at 10.6x) and unchanged 2.0x EV/S multiple for Connected Fitness Product segment, which is a premium to broader hardware peer group given large addressable market, high user retention, and large domestic/international growth opportunities. Biggest risks remain the potential impact from new competition this holiday, and the lock-up expiration date on 3/24/2020, which has created volatility for other recent IPOs in 2019. Peloton | 05 November 2019 W 3 3Q Positives: Strong beat on revenue & outlook: Revenue of $228mn was higher than the Street at $199mn. The F2Q/2020 revenue outlook was $410-420mn/$1.45-1.5bn was above the Street at $397mn/$1.39bn. Adjusted EBITDA result and guidance better than expected: Adjusted EBITDA at a loss of ($21mn) was much better than the Street at a loss of ($81mn), while adj. EBITDA guidance of losses of ($70-$65mn)/($170-150mn) for F2Q/2020 was better than the Street at ($86mn)/($272mn). We have Peloton reaching positive EBITDA in the March quarter of FY21 and for the full year in 2022. Better-than-anticipated subscriber growth and outlook: Connected Fitness Subscribers came in at 563k (+103\% y/y) vs the Street at over 560k. F2Q/2020 Subscriber guidance of 680-685k/885-895k was higher than our est. at 658k/854k, with higher gross adds and lower churn contributing to upside. Engagement metrics remain compelling: In F1Q, Peloton saw 19mn total workouts (+172\% y/y) vs 7.1mn in the prior year. Average monthly workouts per Connected Fitness Subscribers grew to 12 workouts (+32\% y/y) vs 9 workouts in the prior year. Path to profitability could be sooner than expected: With a negative single-digit EBITDA margin in F1Q, Peloton is close to profitability, and reiterated that the US bikes business is already profitable. We estimate that Peloton will be profitable on an EBITDA basis in FY2022, ahead of our prior FY2023 estimate. 3Q Negatives: Hardware margin contraction expected in near term: Connected Fitness Product gross margin (GAAP) held steady at 43\% in F1Q, while F2Q guidance of 37-38\% suggested anticipated margin contraction. Margin pressure is attributable to the ongoing mix shift of sales to tread, and continued investments to a scale supply chain and logistics platform to meet high sales demand during holiday season. Revenue outlook calls for material deceleration in revenue growth F2Q: Peloton guided to $410-420mn revenue for F2Q with the midpoint suggesting 58\% y/y growth, a large deceleration from 103\% y/y for F1Q. F2Q will have tougher comps vs the International and tread launches last year, and could be more promotional in the US. No unit sales data: Peloton did not provide total Connected Fitness Product unit sales or a breakdown between bike and tread. 4 Peloton | 05 November 2019 W Actual vs Expected Results Revenue of $228mn was better than our estimate at $198mn and gross profit at $105mn was ahead of our expectation for $74mn. Connected Fitness Product gross margin (GAAP) came in at 43\%, much higher than our estimate at 32\%, while Subscription gross margin (GAAP) of 56\% was higher than we anticipated at 50\%. Adjusted EBITDA at a loss of ($21mn) was better than our estimate at a loss of ($84mn). Connected Fitness Subscribers were better than our estimate at 563k vs 546k. Monthly Net Churn was better than our estimates at 0.90\% vs 0.99\%. Table 1: Actual vs expected results ($mn except per share data, Subscribers in thousands) BofAML est. Actual Difference Revenues Connected Fitness Product Y/Y Subscriptio ... Purchase answer to see full attachment