The current market climate, with the S&P 500 down 11.9% since the start of 2022, will test investors' patience. And you may feel additional pain as many economists think the economy will slip into a recession sometime this year due to the Federal Reserve raising interest rates and banks possibly tightening lending standards.
This may seem like an inauspicious time to invest in consumer discretionary companies. But for long-term investors, this could turn into the ideal time since you may find bargains. Wayfair (W +5.20%) and Peloton Interactive (PTON +1.39%) have both had success over the years. The question becomes, which consumer company offers better prospects?
Let's dig deeper to find out.
Image source: Getty Images.
Wayfair
Wayfair, an e-commerce seller of home-related goods (e.g., furnishings and housewares) did well during the early days of the pandemic. Homebound people were drawn to the site and used it to go on shopping sprees.
NYSE: W
Key Data Points
In 2020, the first year of the pandemic, revenue increased by 55% to $14.1 billion. And Wayfair reported a $185 million profit compared to a $985 million loss under generally accepted accounting principles (GAAP).
Things haven't gone smoothly since. With pandemic-related supply chain issues, higher costs, and intense competition from the likes of Amazon, Wayfair's results have faltered. Wayfair's first-quarter revenue fell by 7.3% to $2.8 billion, and it lost $355 million.
Key metrics don't look promising, either. They show core customers ordering less. For instance, active customers fell by nearly 15% to 21.7 million, and orders per customer dropped from 1.87 to 1.81. Repeat customers placed 7.6 million orders, down more than 6% versus a year ago.
Peloton
Peloton's stock was also a star performer when the pandemic struck. People bought its exercise machines and signed up for classes.
In the fiscal year that ended on June 30, 2021, revenue more than doubled to $4 billion. However, Peloton's loss widened to $189 million from $71.6 million.
NASDAQ: PTON
Key Data Points
The company has managed to continue growing subscriptions. In the most recent fiscal quarter, covering the period that ended on March 31, Peloton had over 3.1 million connected fitness subscribers, up about 5% from a year ago and more than 2% from the previous quarter.
However, continued red ink remains problematic. Peloton reported a $275.9 million loss in the most recent quarter. While narrower than the $757.1 million loss last year, it's hard to feel positive about it. Granted, management's addressing costs, but it's a long and arduous journey to sustained profitability.
Management has started down the path with its recent announcement, however. Before, Peloton was seen as a luxury exercise-equipment maker and seller of subscriptions. Now, it will offer differently priced subscriptions. It's adding three tiers (now totaling five), including one that's free that will hopefully get people to a paid offering. You also will not need to buy an expensive piece of equipment.
I view this as a positive step, but Peloton still has to prove it can convert free subscribers into paid ones. If you're willing to bear the risk, Peloton's stock, based on its brand relaunch and potentially increased number of subscribers, offers a better investment opportunity than Wayfair, which continues to confront ever-intensifying competition.
