The Peloton-Chipotle Comparison

In one announcement, Peloton (PTON -0.21%) announced layoffs, a reduction in its investment in a new factory, and a new CEO. Are these the moves of a company preparing itself to be sold, or of one that's retooling for the long haul? Motley Fool analyst Bill Mann shares why he thinks new CEO Barry McCarthy is the right choice for the job and how the company's situation reminds him of what Chipotle (CMG 0.91%) went through a few years ago. Also on this podcast:

• Nvidia abandons its attempt to buy Arm Limited due to "significant regulatory challenges."
• We talk about Steven Spielberg and the axiom that past performance is not indicative of future results.
• Motley Fool host Alison Southwick and Motley Fool personal finance expert Robert "Bro" Brokamp discuss how to talk about money with that special someone in your life.

To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.

This video was recorded on Feb. 8, 2022.

Chris Hill: Past performance is not indicative of future results, except when it really, really is. We'll explain in a bit. Motley Fool Money starts now. I'm Chris Hill, joined by Motley Fool Senior Analyst Bill Mann. Thanks for being here.

Bill Mann: Hey Chris, how're you?

Chris Hill: I am doing all right. Cutting investments, cutting jobs, cutting a CEO loose, these are all things that companies do, and they are big decisions, and in one fell swoop, Peloton just did all three.

Bill Mann: They filled the bingo card, didn't they?

Chris Hill: They really did. They announced they're cutting nearly 3,000 jobs. They are no longer going to be building a $400 million factory in Ohio that they had planned. And co-founder John Foley is no longer going to be the CEO. They are bringing in Barry McCarthy, who is the former chief financial officer at Spotify, and then before that, Netflix. He'll be the new CEO. The stock is responding positively, let's just put it that way. Although you could look at Peloton and wonder, how much further does this have to fall? Yesterday, the conversation around Peloton was, "Who's going to buy this company?" with the reports around Amazon and Nike, specifically, and, of course, Apple always gets thrown in there. They make these moves now. Let me start with this question. Do you think they are still setting themselves up to be bought by someone, or are these the moves of a business that says, "We are retooling and we're going to remain independent"?

Bill Mann: I don't know. I haven't heard anything that suggested that Peloton had put itself up for sale at all. There was an activist investor that came out and said, "These are the companies that could be buying Peloton." Maybe there's conversations that are going on in the background or maybe it's just some guys throwing some spaghetti at the wall, because there were companies on that list that were bizarre, like Berkshire Hathaway.

Chris Hill: Oracle got name-checked.

Bill Mann: Yeah. Exactly. I am not sure how serious that was with the exception of the fact that Peloton has an unbelievable brand, it has an unbelievable franchise, and it has been misrun. And that is actually a perfect situation for a transaction to take place. But I haven't heard anything that suggests that Peloton was out there putting itself up on the market.

Chris Hill: John Foley talked about the mistakes that he made. He owned those mistakes. It was a guts-to-go situation for Foley, however.

Bill Mann: Yeah, maybe.

Chris Hill: I think that a lot of people, for perfectly understandable reasons, we looked at this business and said, "Oh my gosh, this was a $50 billion company and now it's a $12 billion company." Let's take it where it is, because investing is all about the future. This is a $12 billion company. They are laying people off. They are radically cutting back the amount of money that they are investing. What do you see when you look at this business in the wake of these decisions?

Bill Mann: I know you're quoting the stock. It was never a $50 billion company. It was a company that the market got really, really excited about and I think actually rightfully so. Now, I think that Barry McCarthy is a genius CEO appointment because the experience that he's had at Spotify and Netflix -- he has gone through companies that have done very well in the long term, but have endured crises.

Now every single company that has had a hyper-growth period -- and Peloton absolutely had that over, call it 18 months to two years, during the pandemic -- goes through a shift where that hyper-growth period changes. And they are in the midst of it now. It does not necessarily mean that a lot of the moves that they made during that period of time were badly conceived. Remember, the crisis for Peloton in 2020 was that people were showing up wanting to buy the bikes and wanting to buy the treadmills, and it was a six-month wait. When you're looking at a company like Peloton, yes, it has been mismanaged in some way. It has not hurt the brand at all. John Foley was not ever one of my favorite CEOs, but I do give him credit for recognizing, at least partially, that he needs to have professional management making decisions at the company. The company that I look at as the proxy for what Peloton is doing is Chipotle, when Steven Ells kicked himself out of the day-to-day running of the company. I think we can say with 100% confidence, that has worked out spectacularly.

Chris Hill: It really has, even though at the time, there were some eyebrows raised at the idea that Brian Niccol, who made his bones at Taco Bell, was being brought in to run the place [laughs] that was touting itself as "food with integrity."

Bill Mann: [laughs] It's so funny. I was like, "Have you had Taco Bell? Are you aware of the fact that that is only Mexican food by the thinnest of margins, and that it basically comes in Mexican food shape?" But Brian Niccol, at a very minimum, knew exactly what it took to take a fast-food or fast-casual restaurant and make it as efficient as possible without harming the experience, such as it is. I mean, nobody is walking into Taco Bell going, "I'm about to have the best Mexican meal of my entire life." That's not the conversation you are having with yourself. But Brian Niccol made that company much more efficient -- as he's done with Chipotle -- without harming the experience, such as it is, for consumers.

Chris Hill: I want to go back to the brand for a second, because Chipotle's brand was harmed by those health scares. Perfectly understandable that people would not really trust the experience of going to a Chipotle after numerous health scares. It wasn't a one-time thing. That brand was hurt. It needed repairing. Brian Niccol and his team have done a great job of doing that. Peloton, as best I can tell, that brand does not seem to be harmed. I get that maybe the reputation of the business among people on Wall Street isn't as shiny as it once was. But in terms of people who use the product, I don't think there's any damage there, is there?

Bill Mann: No, and think about this. Peloton actually, on some levels, went through a crisis that was much greater than what happened at Chipotle, when they had a death -- a child ended up underneath one of their treadmills. And companies go through crises. They just do. I don't want to belittle what happened in that situation. But I think that you can say that Peloton has been resilient to a couple of potentially harmful events for their brand. It even includes fake events like Mr. Big from "Sex and the City" having a heart attack on a Peloton bike. They have dealt with certain things that would be impactful to a weaker brand, and to me, this shows that there is real value at Peloton that is extractable. Hopefully, Mr. McCarthy will get after it.

Chris Hill: Let's move on to Nvidia. We talked on yesterday's show about mergers and acquisitions. I don't know if I said this yesterday, but sometimes acquisitions don't work out. Sometimes you have to walk away from them, and that's exactly what Nvidia has done. It is no longer buying Arm in what would've been the biggest chip deal ever. Nvidia says there are significant regulatory challenges to the deal, so they are walking away from that. They are paying a breakup fee of $1.25 billion. But it's Nvidia, they have the money. [laughs] It's not like you or I went out and got a parking ticket, "Oh my God, $1.25 billion, where am I going to get the money for this?" Nvidia can pay that.

Bill Mann: It seems a little unfair though, doesn't it? I don't think it's their fault. The terms of a breakup fee tend to be pretty ruthless and pretty direct, if for any reason. But in this case, I don't know about you, but to me, it's been clear for months that this wasn't going to happen, and it has nothing to do with Nvidia's willingness to make the deal happen.

Chris Hill: This is a thought I had when I was reading over this story this morning, because you're not the first person I've heard say that today. When I was watching CNBC, I think David Faber made a similar comment. As an Nvidia shareholder, here's my question: Why wasn't it apparent to Nvidia? Why wasn't it clear when they were thinking about making this acquisition? Part of it is I'm unclear on the regulatory process. I don't know if they can go to regulators and say, "Hey, we're thinking about buying Arm, are you guys going to be cool with that?" [laughs] That probably isn't happening. But why did it get to the point where, pretty soon after the deal is announced, a lot of people like you are looking at this and saying, "This isn't going to happen."

Bill Mann: When they announced the takeover back in late 2020, there was a huge amount of fanfare. I think in some cases, companies are really trying to create their own momentum behind moves that they want to make. But almost immediately, the business secretary of the United Kingdom, Ed Miliband, came out deeply opposed to the deal. They knew that there was going to be regulatory scrutiny. Some of the licensees to the architecture of Arm came out opposed to the deal. Competitors came out opposed. I think they always knew that it was going to be a hard thing to do. I think because Arm was owned already by a Japanese company, they were hoping that an American company coming in to buy it, even though it was going to be integrating it, was not going to be a bridge too far. It turns out to have been the case. It may well be though, Chris, that some of it has to do with what you see as an increasing nervousness around big tech in general that has only increased from 2020 to today. That may be a part of it too.

Chris Hill: Do you think Nvidia starts to look for other acquisitions in the same category, albeit smaller ones, or is this a situation where the signal from regulators is clear enough that they need to invest their capital in other ways?

Bill Mann: I love that question. I don't even know what a good proxy for Arm would be. Arm is a very special company. You could say Qualcomm, perhaps. I'm just throwing names out there. Bill Mann says that Nvidia is going to buy Qualcomm. No, I don't really know what would be a good proxy for Arm Holdings. That actually is probably at least partially why there was so much sensitivity around a potential merger from a company like Nvidia.

Chris Hill: What about Peloton? Do you think they'd want to get into [inaudible]?

Bill Mann: I think Peloton would like to buy Arm Holdings. Yeah, sure. I think that's a good shout. Really, what I think is going to happen is that Chipotle is going to buy Arm Holdings, and the merger between burritos and chip architecture is going to be huge.

Chris Hill: Let's close with the Academy Award nominations, which came out this morning. I was very quickly reminded of investing because Steven Spielberg has been nominated for best director for "West Side Story." He's now been nominated for best director in six different decades, [laughs] which brought to mind the phrase we hear in investing all the time: Past performance is not indicative of future results. [laughs] I just thought, well, sometimes it is. I think in the case of an artist like Steven Spielberg, I think past performance is a wonderful indicator of future results, and I think for some of the companies that we talk about, and some of the companies that we hold up as great examples of being multi-decade winners, it's like -- Apple, Microsoft, are they going to post double-digit returns from now until the end of time? No, but I don't know, they're pretty good. Past performance, it's often a good indicator of future results.

Bill Mann: Right. It's like, "indicative" -- I don't think that word means what you think it means, [laughs] because yes, it absolutely, positively does not mean that things will happen, but it's a pretty good way to bet. That's the David Gardner process in a nutshell, is that companies that have done well, and that have been managed well in the past tend to continue to be managed well and do really good things. That's what gave him the confidence to hold an Amazon through thick and thin for 25 years. That is, truly ... would we call Steven Spielberg the Amazon of directors at this point? Is he the Amazon of directors?

Chris Hill: I think Amazon would like to be the Steven Spielberg of companies. Just if we're going by, how long is your track record? His track record starts in the 1970s.

Bill Mann: That guy's going to be something someday.

Chris Hill: Bill Mann, great talking to you. Thanks for being here.

Bill Mann: Thanks, Chris.

Chris Hill: Robert Brokamp is a certified financial planner and The Motley Fool's resident expert on retirement. Here's a fun fact, especially if you're new to the show. His nickname is Bro. If someone is saying the word "bro" a lot, they're not trying to be hip, they're just calling Robert by his nickname. Here to talk with Bro about how you can better discuss money with that special someone in your life is Alison Southwick.

Alison Southwick: This Valentine's Day is going to be special. Picture it: You're at a fancy restaurant, there's a string quartet playing in the corner, a server in tails pours you a glass from the third-least-expensive bottle of wine on the menu. As you gaze across the table at each other lovingly, the candlelight flickers in your eyes. You've thought of every detail, and now is the moment. You reach for their hand and whisper the words you know you should say more often, "We need to talk about required minimum distributions."

Wait, what? Yes. This Valentine's Day, the most romantic thing you can do with your partner is talk about money, or as Bro likes to call it, and make it weird, "make financial whoopee."

Robert Brokamp: Well, that term whoopee, by the way, was chosen for a particular reason, which we'll get to later in the show. But for now, here's what you need to know. How you handle money as a couple will have a significant impact on the quality of your relationship. A few years ago, I got a graduate certificate in financial therapy from Kansas State, and read a ton about the nexus of love and money. One thing I read was "Revisiting Financial Issues and Marriage" by Dr. Jeffrey Dew at Utah State University. It's an overview of the many studies that have looked at finance and romance. I'm just going to bring up a few excerpts -- four, in fact.

No. 1: One study found that sound financial management behaviors, things like budgeting, saving, maintaining insurance were positively associated with relationship happiness, even after controlling for the participants' financial well-being.

No. 2: In a study of long-term couples who felt that they had "great marriages," the couples said that having little to no debt and living within their means contributed to their successful and happy marriages. 

No. 3: We've all heard that money problems are the No. 1 cause of divorce. The evidence behind that claim was actually rather mixed. Some studies confirm it, others find that other issues are actually bigger causes of divorce. But the frequency of financial arguments were linked to the likelihood of future divorce in many studies. For example, in one, disagreement over finances on an almost daily basis had a predicted increase of 69% in the chance of divorce.

And then No. 4: Finally, one study found that having shared financial goals and values predicted relationship satisfaction even better than the couples' reports of good communication. Here's the money quote, so to speak, from Dr. Dew. "These studies suggest that spouses need to jointly determine their financial goals and the means through which they will meet these goals."

Alison Southwick: We could call it a financial summit or a financial State of the Union address, but that makes it sound pretty cold and calculated. Whereas money is actually anything but. That's because when we think we're talking about money with our partners, we're also talking about our personal history, possible trauma, and all the other emotions wrapped up in money.

Robert Brokamp: As any psychologist will tell you, arguments about money are usually not really about money, but about what money represents. Things like control, status, self-worth, fairness, security, even anxiety. For example, one study found that if spouses argue about whether to combine their finances, they may actually be arguing about issues related to trust and autonomy. What money really represents to each of us, as you might expect, can be traced back to how we were raised and maybe some experiences we had when we were growing up. These meanings of money, so to speak, really could cause issues between couples, partially because they are often subconscious. We don't really know they are affecting our behaviors and attitudes, but they are, and they are often not aligned with those of our partner. I think it's funny that one study found that when it comes to money, opposites attract. The study is entitled "Fatal Fiscal Attraction: Spendthrifts and Tightwads in Marriage," and according to the authors, people are more likely to marry someone with different attitudes when it comes to spending, which actually can have some benefits. I think about my wife, who has occasionally pushed me to spend more than I normally would on things like vacations, and I'm grateful she did it. But as you might expect, the evidence shows that spouses with big differences in spending habits are more likely to argue and less likely to be happy.

Alison Southwick: I can speak from personal experience about how you were raised can result in having different attitudes on money. I know that my husband and I generally are on the same page about money, but I come from a family of gift-givers, and that is part of our love language, and he does not. Christmas and my birthday can usually be some interesting times in our house because he's like, "All I have to do is just spend a ton of money on you and you don't even care," and then I'm like, "Well, I mean, kind of a little." Because in my family, that's how you show someone that you actually value them and care about them. We get by. How about you, Bro?

Robert Brokamp: I will say my wife is the same way, and it really comes from a place where she did not have great Christmases and birthdays growing up, so she wants to give something to our kids that she didn't have. So, similar I suppose. But for me, I know that my attitude about money, especially as a spouse and father, is influenced by experiences I had as a kid. I had a very happy childhood, very grateful to my parents, but money was an issue. Then when I was a teenager, my dad's business went under, and for about a year things were pretty dicey. Things like cars getting repossessed, utilities getting turned off, my dad going out the back door because there were creditors at the front door, and then within a year or two, my parents were divorced. I remember thinking back then, "If I ever get married and have kids, I'm not going to let this happen." It really has influenced why I am actually pretty anxious about money and why I take it very seriously.

Alison Southwick: That's why it's important to have these conversations and understand that when you're talking about money, you're not just talking about money. Of course, we aren't suggesting that you pull up Excel tables and a PowerPoint presentation for your partner in between the second and third course, but we are suggesting that you start with an exercise we call The Fooly-Wed Game. It's only 10 questions, and there are also 10 rules. We'll give you a brief overview here, but you want to Google it for the whole thing. Bro, briefly describe the history of The Fooly-Wed Game.

Robert Brokamp: Well, it's a play on the old "Newlywed Game." It's a game show that first aired in 1966 and lasted for decades. By the way, legend has it that when the show started, you couldn't say "sex" on TV. They used the term "making whoopee," which is where that term comes from. It's pretty much been associated with the show to this very day. Now, as for The Fooly-Wed Game, it was created in the early 2000s, still available on fool.com. Just do an online search for it, and here's how it works. Each partner answers 10 money-related questions, individually, but then, the couple gets together to compare their answers. It could also be interesting to try to predict what your partner's responses will be to see how well you know her or his attitudes about money.

Alison Southwick: So, 10 questions, we won't cover them all, but Bro, what are some of your favorites?

Robert Brokamp: Well, I will say one is, you place a list of items in the order of importance, and we're talking about things like retirement and college savings as well as clothes and entertainment. It's a good way to see how much your goals are aligned. Another question asks, "How much is too much to spend without consulting your partner?" I think this question is important because different attitudes on spending is one of the key causes of conflict in couples. But it's also not just that level of spending, but whether one or both spouses are hiding it. This touches on something known as financial infidelity, which is a whole other topic, but suffice it to say it's better to know upfront how much your partner thinks is OK to spend without checking in. Then a third one is, "What are the three best purchases you've made as a couple, and what are the three worst?" These purchases could be things you bought on Amazon, buying a house, or even buying certain investments. Answering the question is another way to see how well you're aligned, but it's also a way to identify what you've done well and ideally maybe should do more of, and then what past mistakes you'd like to avoid.

Alison Southwick: Some of these questions are a bit more cut and dry, but some of them are pretty creative and fun. Like we said, 10 questions, but there are also some ground rules. The ground rules are perhaps even more important, because they are good rules for any financial chat you're having with your partner. Bro, what are some of your favorite ground rules?

Robert Brokamp: I would say the two that are most important are related, and that is, one is, accept equal responsibility for changing your lives around. Studies indicate that when it comes to household finances, there's usually one person who's doing more of the financial work, but that doesn't mean it should be their total responsibility. You have to both accept responsibility for improving your finances. Then another one is, don't play the blame game. These discussions will almost always result in reviewing things that went on in the past that were not ideal, and that's good. You should identify things -- mistakes that you've made, things you want to turn around. But you can't keep bringing those up. At some point, you have to say, "All right, what happened in the past is the past. Today, we're starting out completely fresh and new, and looking forward."

Alison Southwick: It's possible your Fooly-Wed Game financial summit was harmonious and ended with dancing in the field of flowers. But it's more likely you discovered something new about your partner, or some new topics where you aren't aligned, or even areas where you flat out disagree. Next week, we're going to cover the most common money conflicts in relationships and some of the initial steps you can take to solving them together. Don't worry, you swinging singles out there, we have an episode for you coming as well. Bro, any final words of advice for our Fooly-Wed Game players?

Robert Brokamp: First of all, if I were to update The Fooly-Wed Game -- and it is more than 20 years old now -- I'd include a question about the financial logistics of managing money as a couple, things like, who pays the bills, who handles the investments, who's going to find a lawyer so you finally get an estate plan, and ask whether both people are happy with their respective jobs, because like any chore related to running a household, you want to make sure important stuff gets done and that the workload is shared equally. Then finally, I'll just say if you play The Fooly-Wed Game or you just have a thorough or honest discussion about money in general, there could be three possible outcomes. No. 1, you're perfectly compatible and everything's awesome, good job. No. 2, you discover a few key differences which then leads to productive conversation and puts you on a better path, also a good job. But No. 3 is this could really uncover significant problems that you have trouble resolving. This whole Fooly-Wed Game could end up in, frankly, a big argument, and you're not sure what to do about it. We are going to talk on next Tuesday's show about how to resolve some of the biggest financial issues between partners.

But for now, I'm going to suggest one thing and that is you consider getting professional help, and the type of help really depends on the problems. There are almost cut and dried answers to some financial disagreements. For example, if you want to retire at age 65, there is an amount of money you should be saving. It might be that you just need to see a fee-only financial planner and get that objective, expert opinion to help you resolve your disagreements. It could also be that you need to see a financial therapist -- and such a profession does exist. It's relatively new, but you can go to the website of the Financial Therapy Association and see if there's someone in your area that has experience helping couples resolve their financial differences, or you could just see a regular couples counselor. If money issues are an ongoing source of marital discord, paying for professional help could be one of the best investments you'll ever make.

Chris Hill: Do we know how to set the mood for Valentine's Day or what? That's all for today, but coming up tomorrow, Ron Gross will discuss how to evaluate acquisitions and what to do when one of the companies in your portfolio gets bought. As always, people on the program may have interests in the stocks they talk about, and The Motley Fool may have formal recommendations for or against. So don't buy or sell stocks based solely on what you hear. I'm Chris Hill. Thanks for listening. We'll see you tomorrow.