Peloton Interactive (NASDAQ: PTON) and Celsius Holdings (NASDAQ: CELH) are both companies that have impressed investors with their health-oriented products. Peloton offers connected bikes and treadmills that aim to replace gym memberships and spin classes, while Celsius challenges traditional energy drink makers with its healthier beverages.
However, while Peloton’s stock has plummeted more than 80% over the past three years, Celsius’ stock has skyrocketed about 1,450%. Peloton disappointed investors with its post-pandemic plunge in product sales and subscriptions, while Celsius dazzled the market with its explosive growth rates and a big distribution deal with PepsiCo (NASDAQ: PEP). In this article, we will take a closer look at both companies and determine which one is a better buy.
Image source: Peloton.
What happened to Peloton?
Peloton’s high-end exercise bikes and treadmills are connected to subscription-based streaming video workouts through integrated touchscreens. Despite being dismissed as a fad stock initially, Peloton’s business saw a significant boost during the pandemic as brick-and-mortar gyms closed down. Its revenue doubled in fiscal 2020 (which ended in June 2020) and surged another 120% in fiscal 2021.
However, Peloton’s growth stalled after the pandemic ended. A safety-related recall for its treadmills in 2021 hurt their brand, more competitors entered the connected fitness market, and inflation curbed the market’s appetite for its expensive products and subscriptions. Its revenue dropped 11% to $3.6 billion in fiscal 2022, its gross margin declined, and its net loss increased significantly from $189 million to $2.8 billion. As a result, the company laid off many employees and its CEO John Foley resigned last February.
New CEO Barry McCarthy is working on narrowing the company’s losses by outsourcing production to contract manufacturers. Peloton’s revenue declined another 26% YoY to $2.2 billion in the first nine months of fiscal 2023, but it narrowed its net loss from $1.6 billion to $1 billion. The total number of connected fitness subscriptions also increased sequentially and YoY in Q3, suggesting that Peloton’s declines may finally start to slow down in the near future.
Analysts predict Peloton’s revenue to fall 22% in fiscal 2023, while it grows 4% to $2.9 billion and narrows its net loss to $442 million in fiscal 2024. If that happens, some investors may view Peloton as a cheap turnaround play at 1 times this year’s sales.
What happened to Celsius?
Celsius claims to use only natural ingredients like green tea and ginger in its drinks, and they use caffeine and amino acids to provide energy instead of sugar. The company initially launched its drinks in Sweden, but they now generate most of their revenue in North America. Between 2016 and 2022, Celsius’ annual revenue rose from $23 million to $654 million, representing a stunning compound annual growth rate of 75%.
Analysts predict Celsius’ revenue to rise 68% to $1.1 billion in 2023 and grow 34% to $1.5 billion in 2024. Much of this growth is expected to come from their new U.S. distribution partnership with PepsiCo, which was launched last year, and the expansion of its overseas business. PepsiCo invested $550 million into Celsius as part of this distribution deal, which suggests the two companies could expand their domestic distribution partnership to other overseas markets.
Celsius has a lot of room for growth as they challenge larger energy drink makers like Red Bull and Monster. According to Nielsen’s numbers from last October, Celsius only controls 2.6% of the US energy drink market, while Monster held a 31.1% share and Red Bull remains the market leader with a 36.1% share.
Celsius generated a slim profit of $4 million in fiscal 2021, but it had a net loss of $199 million as they booked a one-time $194 million charge from terminating its partnership with its previous distributor. Despite this charge, analysts predict that they will return to profitability with a net income of $115 million in 2023. While Celsius’ growth rates are impressive, a lot of that optimism is already priced into its stock as it trades at 10 times this year’s sales and more than 130 times forward earnings.
So, which one is a better buy?
While both Peloton and Celsius are volatile stocks, Celsius may be a better buy. It’s growing faster, more profitable, and could significantly expand its tiny slice of the energy drink market. While Peloton probably won’t go bankrupt anytime soon, it hasn’t proven that its business model is sustainable yet, and analysts predict a further decline in its revenue in fiscal 2023. Investors may want to keep an eye on Peloton and see if it can stabilize or continue to decline before making any decisions.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Leo Sun has positions in Amazon.com. The Motley Fool has positions in and recommends Amazon.com, Celsius, Monster Beverage, and Peloton Interactive. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
