EJ: The countdown to the next crisis of The System has started.

[EJ]

Re: EJ: The countdown to the next crisis of The System has started.

1. never is an exceedingly long time

2.Turns out Peloton is burning cash as quickly as its users burn calories. ... In its fiscal 2018 year, which ended just two months after that interview, on June 30, Pelotonposted a net loss of $47.9 million. In fact, according to its S-1, Peloton posted net losses for the past eight consecutive quarters.Aug 28, 2019

3. i think virzoom has a MUCH bigger potential market than a $2000 stationary bike.

Peloton is a very different kind of business than VirZOOM. Both are in the connected fitness space and have recurring revenue models, but the similarity ends there.

The Peloton business model requires massive capital investment to pay for manufacturing, distribution, installation and support of a combination of a spin bike and custom tablet, with an estimated COGS of $2,000, and production of streaming spin class content at studios that entails celebrity instructors, producers, and production teams. To reach the audience of $100k+ annual household income customers they target, many millions of dollars needs to be spent on high production values advertising. Peloton’s Customer Acquisition Cost has been estimated at $500, which with a $40/mo subscription implies an average CAC Payback Period of 12 months, quite high by average SaaS standards, and only if monthly churn rate was zero. A company with such a high CAC and long CAC Payback Period is churn-sensitive: our models estimate that Peloton has to keep the monthly churn rate under 1% to hope to ever become cash-flow positive.

Unit and SaaS economics are unforgiving. If the unit and SaaS economics aren’t there to support positive cash flow, doesn’t matter how much capital you input into a SaaS revenue machine, you will always get less out of it. I expect that companies that cannot show a clear path to profitability and burn cash at the rate the Peloton does may face challenges as market and economic conditions that were present at the time Peloton went public deteriorate. Also, at $2,200 Peloton is a luxury discretionary purchase, and these typically do poorly in recessionary periods. The 7.7% decline in PTON stock today likely reflects that. VZfit as an inexpensive add-on ($99 sensor + $150 VR headset) to existing fitness equipment with a $10/month premium membership compares favorably as a substitute to, for example, a Lifetime Fitness $80 initiation fee and $62/month membership fee.

VirZOOM's business model is more similar to Zwift's than Peloton’s: the value is in the content. At this stage of the VirZOOM’s development, on seed stage level funding, the goal is to prove compelling unit and SaaS economics, and capital efficiency, then raise institutional funding to scale the business: Customer Acquisition Cost, Customer Lifetime Value, CAC/CLV ratio, CAC Payback Period, Trial-to-Paid Conversion Rate, Retention Rate, and Churn Rate all have to be proven. These ultimately determine the potential for positive cash flow at scale.

So far most of these metrics are proving favorable comparable consumer mobile SaaS business comparables. For example, the average Trial-to-Paid conversion rate across all application types within the category is 26%. For VZfit it's 92%. Our CAC/CLV ratio is comfortably mid-range for a SaaS business, and our CAC payback period (you don’t start to actually make money from memberships until you cover your CAC) is very favorable compared to others, and about 1/4 of Peloton’s.

The premise of VirZOOM is that VR, by virtue of being immersive, is a fundamentally superior medium for fitness motivation over flat screen solutions. In the words of an Evening Standard reporter, ”a kind of next gen immersive Peloton.” Also, the range of physical activities that consumers can engage in with VZfit is nearly infinite (running, biking, flying, racing, battling, etc.), rather than confined to spin classes and online racing ala Zwift. At the end of the day, Peloton is still a single-app connected fitness platform. A number of Peloton users report getting tired of it and adding VZfit. They can be found in social media posts and Amazon reviews about VZfit. Some of our high net worth customers invest.

In this MarketWatch segment I make the case for VR as the future of connected fitness.

The primary VZfit adoption rate factor is the rate of VR adoption. The mass media plays a critical role.

During a period of slow VR sales after the peak of the hype cycle in 2017, positive mainstream media coverage of VR was rare. The recent market success of the Oculus Go and Quest 2nd generation mobile VR platforms is now encouraging journalists to revisit VR; for example, this recent Washington Post article on VirZOOM that was also published in The Independent.

Still, while Gen2 mobile VR addresses cost, complexity, and some of the weight issues of Gen1 tethered VR, one more generation of VR is needed before mass market adoption can occur. A reporter for a major women’s health magazine who declined to cover VZfit after she tried it after attaching our VZfit loaner to her Peloton bike. She told me after trying it that she is “convinced that VZfit will make my Peloton obsolete” but that her readers are not going to wear a VR headset that “makes you look like you’re wearing a toaster on your face.”

Qualcomm announced the next generation XR2 AR/VR chip set in December 2019. The design concept for the next generation of VR headsets based on this chip set is included in the PR: glasses-like headset for display, position tracking, and hand tracking tethered via 5G to iOS or Android device where the heavy CPU/GPU processing takes place.

If there's interest, let's continue the VirZOOM discussion on the VirZOOM forum.

Other recent VZfit press:
https://www.thegamer.com/virzoom-vzf...latform-review
https://www.vrfitnessinsider.com/vzf...irtual-reality

[jk]

Re: EJ: The countdown to the next crisis of The System has started.

But today is "blood-in-the-streets" time for oil and gas. Time to nibble away and take initial positions in Exxon and BP. Nobody knows where the bottom is, but the multinational oil companies are now being thrown away...

I am not a medical professional, but I am firmly in the camp this too shall pass and the global economy will expand and the need for energy will be reaffirmed.

given that the markets are still plunging, and oil is down 8% [edit 10%] today, why nibble now?

i had been nibbling in february in light of the commodities sell off, working up to a 9% position in commodity related stocks. i was thinking that the fed's printing press would soon have to pick up speed and cause prices to start rising.

yesterday i decided that we were headed for a worse recession than i'd anticipated, and i sold the majority of my commodity-related positions. today, for the moment at least, i'm feeling glad about that decision.

an alternative would be to wait for a bottom to be established and markets to start recovering. you won't catch the bottom but your risk/reward would, i think, be better.

in 1929 many who were smart enough to miss the initial crash got destroyed when they bought into the first big relief rally. no harm in waiting, i think.

[Chris Coles]

Re: EJ: The countdown to the next crisis of The System has started.

Everybody knows the reason Peloton is successful because husbands give them as Christmas presents to their trophy wives.

and thanks for the great laugh. Much appreciated.

[GRG55]

Re: EJ: The countdown to the next crisis of The System has started.

Hi GRG55,

Thanks very much for your reply, especially as I have little/no insight into the oil sector. I fully understand your caveats, and am glad you restated them. Not just for my benefit but also for others.

Since I live in Australia, do you think BHP is worth a look? The other day I had a look at BHP's stock price compared to Suncorp's. By just eye-balling the chart, there appeared to be a strong correlation between the two. Now, of course, I could download the raw data and calculate the correlation, but I'm fairly certain that it would confirm that the correlation is high.

Yet another question, what sort of timeframe do you expect to have finished "running the ruler over" the companies you're looking at?

Best Regards...

BHP is a mining stock, with some oil and gas assets. I can't comment beyond that. It's not a company I have followed for some time.

But today is "blood-in-the-streets" time for oil and gas. Time to nibble away and take initial positions in Exxon and BP. Nobody knows where the bottom is, but the multinational oil companies are now being thrown away.

The worst forecast I have heard is the C-19 virus will result in China/Asia economic contraction resulting in a permanent 7 million bbl/day decline in oil demand (it took me a whole day to stop laughing).

Once again, our media (MSM and social) are overdramatizing this virus. With a 100,000 know cases worldwide in a population of 7 Billion it does not seem to me to be anywhere near as contagious as its made out to be. Even the "hot spot" countries such as Iran and S Korea don't seem to have particularly high known infection rates as a % of population.

I am not a medical professional, but I am firmly in the camp this too shall pass and the global economy will expand and the need for energy will be reaffirmed.

[jk]

Re: EJ: The countdown to the next crisis of The System has started.

Everybody knows the reason Peloton is successful because husbands give them as Christmas presents to their trophy wives.

lol. to keep them trim, of course.

[GRG55]

Re: EJ: The countdown to the next crisis of The System has started.

My understanding of the underlying reason for the success of Peloton is that they have, for some considerable time now, been spending a fortune on marketing; particularly TV advertising, with advert after advert throughout the evening, and no one needs to tell me that costs a lot of money . . . a lot of money.

...

Everybody knows the reason Peloton is successful because husbands give them as Christmas presents to their trophy wives.

[jk]

Re: EJ: The countdown to the next crisis of The System has started.

a reason to be optimistic:

a doctor friend of a doctor friend of mine spent several weeks at lackland afb, caring for the passengers of the diamond princess as well as wuhan evacuees. he described the cruise ship group as essentially geriatric, with a lot of medical comorbidities. he reported that their fatality rate was 1%. in general, he said, people get either no symptoms or the symptoms of a mild cold.

the doctors there, chatting among themselves, agreed they's rather get covid-19 than influenza a.

i find the diamond princess observations particularly compelling- you have a defined group of highly vulnerable people who have all had a high level of exposure to the virus. this is a natural experiment of the highest order.

[EJ]

Re: EJ: The countdown to the next crisis of The System has started.

Great to see you back, EJ. I know "The" virus is the big thing all of a sudden, but for what it's worth, I have a friend who is high up in the dept of health of a major metropolitan US city and when I asked her if we should panic, to summarize she said, "No, people are idiots. Anyone who knows about Coronavirus isn't hysterical". Now that's obviously subjective coming from a science-background and doesn't necessarily capture what might happen on an economic-scale, but my two cents anyway.

Also, I'm wondering if this could be the "Ka" in the "Ka-Poom" of The Janszen Scenario? I ask because my personal market analysis indicates that the market isn't necessarily discounting the virus' impact, but instead is discounting a potential Sanders win of the Democratic Primary. Now, personally, I find this low odds, considering I highly doubt an anti-FIRE economy candidate could actually win, but not many thought Trump could win in 2016 and look where we are now. My theory is, if Sanders really does have a shot at the nomination, I fully expect him to defeat Trump in November (I don't think Biden stands a chance). If I were loaded with capital within the FIRE sector and I knew Bernie would be chosen as the Democratic candidate, I would send my money out of the US and hide it. This is the very definition of capital outflow, no? In the Janszen scenario, could this Coronavirus fear be the "Ka" and if Bernie wins, we get a "Poom" when capital flows out of the US, the dollar collapses, and rates rise along with import inflation? Thanks in advance for any insight.

Wish I had more time to respond at the level of detail that your thoughtful questions merit, but as is the case for any company CEO at this time, have my hands full managing a business through this crisis.

Last week if you run a company in the US, you likely received a notice along these lines:

During this time, you may want to review your business continuity plans. For business continuity planning resources, please refer to the CDC and Federal Emergency Management Agency (FEMA) websites:

CDC: Get Your Workplace Ready for Pandemic Flu and Business Pandemic Influenza Planning Checklist
FEMA: Pandemic Influenza Continuity of Operations

Start-up management is highly time-intensive under normal circumstances; the CV-19 pandemic is keeping all of us even more busy than usual.

Briefly, I want to explain that my 2/20 Tweet warning of a major crisis that is the subject of this thread resulted from independent research over a long period of time, as was the case for previous warnings April 2000 and December 2007. In 2005 I researched global pandemics to get an understanding of how a pandemic in modern times could effect the economy. My take-away was that a new virus that is highly transmissible and unique (zero immunity among the population) could cause a pandemic that at least in one key respect be worse than the 1918 influenza pandemic: rapid spread. The 1918 pandemic occurred before the era of modern transportation. The general population in 2018 was far less mobile than today. Some of the writers I read at the time noted that air travel in particular posed a special risk, as the ideal mechanism for global spread of a new virus. When I learned that mildly symptomatic and asymptomatic CV-19 carriers could infect others, irrespective of fatality rate I knew we were in serious trouble.

A college friend who has run ER for a major Boston hospital for 20+ years echoes this NYC hospital doctor’s views.

Her assessment is that COVID-19 cannot be contained at this stage and is now permanently part of the global virus set and will be with us from here on out. Her immediate concern is that the average 15% of cases that are Serious or Critical will quickly overwhelm ICU capacity in the US if the infection rate continues at the current rate. An emergency conference among Boston hospital ER practitioners called for next week to develop a coordinated strategy, but was cancelled due to concerns that medical staff are already infected, and spreading it among each other at a conference is not going to help matters.

This first wave won't be as bad as perennial, professional doomers predict, but politically it could very well prove to be the Trump administration’s Katrina, due to the administration's early response being so clearly disproportionate to obvious risks posed to the US population, as evidenced by the experience of other countries where CV-19 was present before it reached the US.

If anything has been learned over the past several months about CV-19, speed is critical.

When this is all over, the severity of the outbreak in the US will be blamed on the lack of a rapid and effective initial response by the US administration.

If the COVID-19 global pandemic has the economic effect on the US economy that equity and bond prices are now pricing in, whether this results in a Biden or Sanders win is hard to guess at, but logically it favors Sanders because he’s made socialized health care a key part of his platform, and serious flaws in the current US healthcare system are being starkly revealed.

The COVID-19 pandemic has launched a global health care system effectiveness contest that so far is favoring countries with socialized healthcare systems.

Germany is in the lead with 565 cases and 0 fatalities, France with a 1.4% fatality rate, and S. Korea with a 0.7% fatality rate. Skewing these ratios is the rate of testing, with S. Korea far in the lead with free drive-through testing and results in hours, and the US trailing pretty much every country on earth, including Iran and Italy. The US with 232 cases and 14 fatalities is today coming in a 6%, but this ratio may improve as 1,000s of new cases are discovered after large scale testing finally gets underway next week.

Some countries can be discounted from the numbers; Russia continues to report single digit cases and zero fatalities… highly improbable. My Russian friends roll their eyes. Likewise Vietnam, China, etc.

Averaging the results worldwide is at this time the best way to normalize for these variables.

This site indicates an overall 85%/15% ratio of Mild/Serious or Critical cases. As for fatality rate, other estimates I've seen conflate new cases that have not yet resulted in an outcome with cases that have. CV-19 doesn't immediately result in fatality, so new cases should not be included. If only cases with an outcome are used in the fatality rate calculation, the result is 6%.

It’s early days and each county is dealing with the pandemic within the institutional, cultural, historical, and legal frameworks that are unique to each.

In Singapore, if you are ordered to stay home, food and other household supplies will be delivered to you every 4 days, and you risk arrest and imprisonment if you fail to comply. In China you will stay where you're told to stay. No one even has to ask what will happen if you don't. Nothing good.

Ignorance, misinformation, and a lack of common sense will continue to be the key enemies of progress. It’s astonishing to me that Americans have to be told that face masks don’t protect you from illness. Equally astonishing is the advice that Americans not bother wearing masks for this reason. If you've ever traveled to Japan or Taiwan you've seen medical masks worn commonly in public. This isn't to protect the wearer from others but as a courtesy to protect others from the wearer who may have a cold or other infectious disease. This cultural habit may help explain relatively low CV-19 incidence in Japan and Taiwan relative to population size and density to date. Better advice from a public health standpoint is to ask all Americans to wear masks 100% of the time in pubic in case they are infectious but asymptomatic and don’t know it.

You have to look pretty hard to find reasons to be optimistic about the outcome here in the US. Likely hundreds if not 1,000s of CV-19 carriers have been circulating for weeks, large scale testing is still not underway, and the administration continues to treat the experiences of dozens of other countries as irrelevant to the US, and common sense is still taking a back seat to politics, hysteria and distrust of public institutions amplified by social media.

Iran is contemplating use of military force to contain the out-of-control outbreak there:

Let’s hope that experience doesn’t become relevant here.

[Chris Coles]

Re: EJ: The countdown to the next crisis of The System has started.

1. never is an exceedingly long time

2.Turns out Peloton is burning cash as quickly as its users burn calories. ... In its fiscal 2018 year, which ended just two months after that interview, on June 30, Pelotonposted a net loss of $47.9 million. In fact, according to its S-1, Peloton posted net losses for the past eight consecutive quarters.Aug 28, 2019

Thanks jk, you put it far better than I could. Any fool can burn cash, and doing so does not make for any credibility.

[shiny!]

Re: EJ: The countdown to the next crisis of The System has started.

As a point of interest, the gold:silver ratio is now a whopping 1:96.7 .

[jk]

Re: EJ: The countdown to the next crisis of The System has started.

What a stunningly misguided post: Peloton has achieved a level of success that Virzoom can only dream of and will never ever remotely match.

EJ, instead of quoting potentially misleading "daily unit sales" growth, why don't you share with us standard financial information about Virzoom and let us decide about its performance?

Virzoom is a terribly flawed idea and no amount of Covid-19 will change that.

1. never is an exceedingly long time

2.Turns out Peloton is burning cash as quickly as its users burn calories. ... In its fiscal 2018 year, which ended just two months after that interview, on June 30, Pelotonposted a net loss of $47.9 million. In fact, according to its S-1, Peloton posted net losses for the past eight consecutive quarters.Aug 28, 2019

3.virzoom has a MUCH bigger potential market than a $2000 stationary bike.

[Mega]

Re: EJ: The countdown to the next crisis of The System has started.

Come on EJ are we "Here" yet?

[EJ]

Re: EJ: The countdown to the next crisis of The System has started.

What a stunningly misguided post: Peloton has achieved a level of success that Virzoom can only dream of and will never ever remotely match.

EJ, instead of quoting potentially misleading "daily unit sales" growth, why don't you share with us standard financial information about Virzoom and let us decide about its performance?

Virzoom is a terribly flawed idea and no amount of Covid-19 will change that.

Private companies do not publish their financials. One of the advantages of being private over public is that you can avoid sharing information that competitors can use against you. To protect the company and investors, we do not and should not publish these. We issue detailed, confidential financials to our investors quarterly, and share these with prospective investors under NDA. We felt comfortable sharing the unit sales growth rate because it reveals growth without disclosing financial information that is inappropriate to share on a public forum.

[Alvaro Spain]

Re: EJ: The countdown to the next crisis of The System has started.

Would you be so kind to explain me a little bit why the idea of Virzoom is flawed? Thank you in advance.

[Chris Coles]

Re: EJ: The countdown to the next crisis of The System has started.

What a stunningly misguided post: Peloton has achieved a level of success that Virzoom can only dream of and will never ever remotely match.

EJ, instead of quoting potentially misleading "daily unit sales" growth, why don't you share with us standard financial information about Virzoom and let us decide about its performance?

Virzoom is a terribly flawed idea and no amount of Covid-19 will change that.

My understanding of the underlying reason for the success of Peloton is that they have, for some considerable time now, been spending a fortune on marketing; particularly TV advertising, with advert after advert throughout the evening, and no one needs to tell me that costs a lot of money . . . a lot of money.

There is a very distinct line between a business led by the likes of EJ, and the likes of a Peloton where, it seems certain, their investors have taken up the challenge to fund a marketing exercise that will lead to dominance in their marketplace. Correct me if I am wrong, there has been no evidence that EJ has asked anyone here for that level of funding support. There are always more than one way to look at how to make progress with a new business; some take a much longer, slower view than others. Both can work, both can succeed. Both deserve respect.