Alibaba Group (NYSE: BABA) and Peloton Interactive (NASDAQ: PTON) have both left many investors disheartened in recent years. Alibaba soared to its peak in October 2020 only to plummet by over 75% due to a tumultuous mix of macroeconomic challenges, regulatory hurdles, and fierce competition. On the other hand, Peloton witnessed its stock reaching record heights in January 2021, driven by robust sales of connected fitness products during the pandemic, but later tumbled by approximately 97% as its growth momentum waned amid broader economic reopening.
Image source: Peloton.
Alibaba’s Uphill Battle
Alibaba’s troubles began with a hefty $2.75 billion antitrust fine from Chinese regulators in 2021. Additional directives prevented Alibaba from engaging in exclusive deals and aggressive promotions, culminating in a decline of its market share to rivals such as PDD Holdings and JD.com. Amidst China’s unpredictable lockdowns and other macro issues, Alibaba’s growth trajectory faced further obstacles. The company’s cloud division faced headwinds as it lost key customers like ByteDance’s TikTok to rival cloud platforms.
Consequently, Alibaba reported a mere 2% revenue growth in fiscal 2023, a stark contrast to its 19% and 41% growth rates in fiscal 2022 and 2021, respectively.
Although bearing the scars of a battered growth trajectory in its home market, Alibaba seeks to reinvigorate by expanding into higher-growth international markets like Southeast Asia and holding firm with its Cainiao logistics arm. Analysts project a modest 8% revenue CAGR for Alibaba from fiscal 2023 to fiscal 2026, coupled with a more robust 24% CAGR in net income. With its strategic reshuffles and imminent IPOs, Alibaba’s stock valuation at a mere 11 times forward earnings seems alluring.
Peloton’s Quest for Redemption
Peloton’s narrative took a turn as conventional gyms reopened and the market introduced more affordable rivals. Despite efforts to diversify its product offerings, Peloton’s revenues dwindled by 11% in fiscal 2022 and a further 22% in fiscal 2023, forecasting another 3% drop in fiscal 2024. To weather the storm, Peloton made tough decisions – downsizing its workforce, outsourcing production, and venturing beyond its core distribution channels to platforms like Amazon.
By adjusting its pricing strategies and honing in on subscription services, Peloton managed to improve its margins and rein in its EBITDA losses. Analysts foresee Peloton turning the corner with positive adjusted EBITDA in fiscal 2025, albeit remaining unprofitable on a GAAP basis. Optimistically, revenue growth is anticipated to rebound by 5% in fiscal 2025 and 7% in fiscal 2026, as the company streamlines its operations.
Trading with a price-to-sales ratio of 1, Peloton presents an affordable investment opportunity. However, with a dwindling subscriber base and lingering revenue challenges, Peloton’s survival remains uncertain. The company’s pivot towards a sustainable model warrants scrutiny before committing as an investor.
Final Call: Alibaba Edges Forward
Despite enduring hardships, Alibaba stands as a resilient option for patient investors seeking stability in the e-commerce and cloud space. With a compelling valuation, strong cash flow, and continuous share buybacks, Alibaba’s potential for a gradual rebound appears promising. On the contrary, while Peloton may avoid immediate bankruptcy, it necessitates a fundamental business overhaul to regain its footing as a viable investment option.
Disclosure: The author holds positions in the mentioned stocks.