Peloton (PTON -5.61%) and Celsius (CELH -0.21%) both initially impressed investors with the disruptive potential of their health-oriented products. Peloton's connected bikes aimed to replace gym memberships and spin classes, while Celsius challenged traditional energy drink makers with its healthier beverages.
But over the past three years, Peloton's stock has plummeted more than 80% while 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 (PEP 0.57%). Celsius has clearly been a much better investment than Peloton, but will that trend continue?
Image source: Peloton.
What happened to Peloton?
Peloton's high-end exercise bikes and treadmills are tethered to subscription-based streaming video workouts through integrated touchscreens. Many investors dismissed Peloton as another fad stock when it went public in 2019, but the pandemic lit a fire under its business 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.
Unfortunately, Peloton's growth stalled out after the pandemic ended. A safety-related recall for its treadmills in 2021 tarnished its 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 plummeted, and its net loss widened from $189 million to a staggering $2.8 billion. That meltdown resulted in mass layoffs and the abrupt resignation of CEO John Foley last February.
Peloton's new CEO Barry McCarthy is trying to narrow its losses by outsourcing its production to contract manufacturers, replacing its direct-to-consumer sales model with an Amazon storefront, and reducing its other expenses. Peloton's revenue declined another 26% year over year 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. Its number of connected fitness subscriptions also rose sequentially and year over year in the third quarter -- which suggests its declines could finally bottom out in the near future.
Analysts expect Peloton's revenue to fall 22% in fiscal 2023, but to grow 4% to $2.9 billion in fiscal 2024 as it narrows its net loss to $442 million. If that stabilization occurs, some investors might consider Peloton to be a cheap turnaround play at 1 times this year's sales.
What happened to Celsius?
Celsius claims its drinks only contain natural ingredients like green tea and ginger, and they use caffeine and amino acids to provide energy instead of sugar. It initially launched its drinks in Sweden, but it now generates most of its 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 expect Celsius' revenue to rise 68% to $1.1 billion in 2023 and grow 34% to $1.5 billion in 2024. A lot of that growth will likely be driven by its new U.S. distribution partnership with PepsiCo, which was launched last year, and the expansion of its overseas business. PepsiCo also invested $550 million in Celsius as part of its distribution deal, which suggests the two companies could expand their domestic distribution partnership to other overseas markets.
Celsius could have a lot of room to grow as it challenges larger energy drink makers like Red Bull and Monster. Celsius only controls 2.6% of the U.S. energy drink market, according to Nielsen's numbers from last October. Monster held a 31.1% share, while Red Bull remained the market leader with a 36.1% share.
Celsius generated a slim profit of $4 million in fiscal 2021, but it racked up a net loss of $199 million as it booked a one-time $194 million charge from terminating its partnership with its previous distributor to work with PepsiCo instead. Analysts expect it to return to profitability with a net income of $115 million in 2023. Celsius' growth rates are impressive, but a lot of that optimism is already baked into its stock at 10 times this year's sales and more than 130 times forward earnings.
Stick with the higher-growth winner
I wouldn't rush to buy either of these volatile stocks right now. But if I had to choose one over the other, I'd stick with Celsius because it's growing faster, it's more profitable, and it could significantly expand its tiny slice of the energy drink market. Peloton probably won't go bankrupt anytime soon, but it hasn't proven that its business model is sustainable yet.
