Raphael Stevens

More stories

  • 138 Shares199 Views

    in Finance

    Bret Taylor’s AI startup Sierra raises funding at $4.5 billion valuation

    AI Age
    AI Insights

    Sierra, the startup founded by ex-Salesforce co-CEO Bret Taylor and former Google executive Clay Bavor, has raised a funding round that values the company at $4.5 billion. 
    The $175 million round was led by Greenoaks Capital, with participation from ICONIQ and Josh Kushner’s Thrive Capital. 
    One in every three venture dollars this year has gone to an artificial intelligence startup, according to CB Insights.

    Artificial intelligence startup Sierra, co-founded by ex-Salesforce co-CEO Bret Taylor, is more than quadrupling its valuation to $4.5 billion in a fresh funding round.
    The San Francisco-based company, which was valued at $1 billion in January, raised $175 million in a funding round led by Greenoaks Capital. The Information reported earlier this month that Sierra was in the midst of raising capital.

    Taylor is chairman of OpenAI’s board and previously ran Salesforce, alongside Marc Benioff. He was also chairman of Twitter when Elon Musk was negotiating to buy the social media company. Taylor is a longtime entrepreneur, widely credited with helping to create Google Maps. At Google, he met his Sierra co-founder Clay Bavor, who spent nearly two decades at the tech giant, leading virtual reality efforts and Google Labs.
    Sierra is focused on helping enterprises like home security company ADT, Sonos, Weight Watchers and Casper personalize and implement AI agents for customer service. Taylor and Bavor unveiled the startup earlier this year.
    “We think every company in the world, whether it’s a technology company or a 150-year-old company like ADT, can benefit from AI, and the technology is ready right now,” Taylor told CNBC in an interview. “We want to enable Sierra to address that market, and that means expanding internationally and to other industries.” 
    ICONIQ and Josh Kushner’s Thrive Capital contributed to the new funding round.
    Taylor describes Sierra as “conversational AI,” and bristles at the word “chatbot,” even banning the phrase in the company’s downtown San Francisco office. Sierra is looking to create a more conversational style of interaction, Taylor said. He pointed to the ease of OpenAI’s ChatGPT and compared it with the frustrating experience of talking on the phone with an airline bot.

    “When you think of chatbots, you think of those annoying, robotic things — you can feel the difference,” Taylor said, adding that Sierra is making its agents more “empathetic and conversational.”

    Bret Taylor, co-CEO of Salesforce, speaks at the Viva Technology Conference in Paris on June 15, 2022.
    Nathan Laine | Bloomberg | Getty Images

    Sierra’s team lets each client customize the agent’s personality to its corporate brand. Clothing company Chubbies, for example, took a more sarcastic route with a younger sounding agent named Duncan Smothers. Taylor said some luxury brands are opting for a British accent with a more serious tone. 
    “We really think that your conversational AI agent should be not only transactional, but a brand ambassador,” Taylor said. “It’s actually something that is a statement of your values. So do you want to be sarcastic? Do you want to use emoji? Do you want it to sound like text messaging, or do you want it to sound like a lawyer?”
    Sierra uses what Bavor and Taylor describe as a “constellation” of models, with a “supervisor.” The technology uses one model to do the heavy lifting, with the expectation that it won’t be 100% reliable, but use a second model as a backup, to “check” the others and help with accuracy. The company currently relies on large language models from OpenAI, Anthropic and Meta, among others. 
    There’s competition in the space. Taylor’s former company, Salesforce, as well as Microsoft, in partnership with OpenAI, are exploring the AI agent space. Taylor compared Sierra with the companies that built cloud software on top of Amazon Web Services and other cloud infrastructure.
    “In the cloud era, you had Shopify, Salesforce, ServiceNow and Adobe — I think the same thing will play out in AI with Sierra,” Taylor said. “We’re helping their branded customer facing agent.”
    He mentioned startups like Cursor, which makes coding agents, and Harvey, which makes legal agents.
    Sierra’s funding follows a flurry of major AI announcements in Silicon Valley. OpenAI raised billions of dollars at a $157 billion valuation. Perplexity is in the midst of raising a round that values the company at $9 billion, a source confirmed to CNBC. One in three venture dollars this year has gone to an AI startup, according to CB Insights. 
    “When a technology wave like this happens, I think a lot of people are trying to place their bets,” Taylor said. “I don’t know which company will win, but it’s a smart investment, categorically. Clearly customer experience and customer service is a huge opportunity, and I think we are the leader in this space, and seeing a lot of demands because of that.” 

    Don’t miss these insights from CNBC PRO More

  • 125 Shares119 Views

    in Business

    Immersive entertainment company Cosm lands rights to broadcast NFL games

    Cosm will broadcast NFL games across networks on Thursdays, Sundays and Mondays.
    The immersive experience, with a 360-degree dome and giant 8K LED screens, allows people to feel as though they are at the game.
    Cosm has locations in Los Angeles and Dallas, with plans for another venue in Atlanta and more down the road.

    Cosm currently has two locations in Los Angeles and Dallas, Texas but plans but is planning on expanding to additional locations in the future.
    Courtesy: Cosm

    Cosm, the immersive technology company that broadcasts live sports events using what it calls “shared reality,” is partnering with the National Football League, the company announced Monday.
    As part of the deal, Cosm will produce and distribute NFL games at its venues throughout the rest of the 2024 season.

    The deal includes broadcasting every Thursday night football game on Amazon, all Sunday night games on NBC, every Monday night football game on ESPN and select games on Sunday with Fox.
    The company, founded in 2020 by Mirasol Capital, uses a 360-degree dome with giant 12K+ LED screens to offer viewers a fully immersive “shared reality” experience that mirrors being at the game.
    The domes fit about 700 people with the average ticket price ranging between $22 and $127. Cosm uses a dynamic pricing model, similar to concerts or live sports.
    “What’s so unique about a property like the NFL is that fandom is everywhere,” said Jeb Terry, president and CEO at Cosm. “We see fans coming in wearing jerseys, bringing the Terrible Towel, bringing cow bells, having an absolute blast, like they’re at the stadium themselves.”
    The company did not disclose the financial details of its deal with the NFL.

    Cosm offer a wide range of live sports and also educational programming
    Courtesy: Cosm

    Cosm first opened its doors in Los Angeles and Dallas this summer and recently announced its third venue would be in downtown Atlanta, with future locations to be announced soon.
    Cosm already has deals in place with the NBA, UFC, ESPN, NBC Sports, TNT Sports, Fox Sports and Amazon Prime Video, and broadcasts everything from the Summer Olympics in Paris to the current World Series.
    Tickets for the first game of the World Series featuring the Los Angeles Dodgers and the New York Yankees sold out in seven minutes, Cosm said. The second game sold out in one minute.
    “Inventory is flying off the shelf,” Terry said.

    The shared reality experience gives fans the feeling of being at the game.
    Courtesy: Cosm

    While live sports act as the core anchor for Cosm, the company also has nonsports offerings, including an animated voyage beyond the planets through the eyes of astronauts and a Cirque du Soleil show. This allows the company to have programs throughout lunch and matinee hours when live sports may not be available.
    As fans’ viewing habits are changing, Cosm is finding rapid success in its tech-forward model.
    Terry said the venues are already seeing repeat customers and they will soon be introducing membership rewards and season passes.
    In July, the company raised more than $250 million in funding to expand globally. Cosm is valued at more than $1 billion, and its investors include sports heavyweights such as former Milwaukee Bucks owner Marc Lasry, Cleveland Cavaliers owner Dan Gilbert and co-managing partner of the Philadelphia 76ers and the New Jersey Devils David Blitzer.
    Disclosure: Comcast owns NBCUniversal, the parent company of CNBC.

    Don’t miss these insights from CNBC PRO More

  • 175 Shares189 Views

    in Finance

    Wise’s billionaire CEO fined £350,000 by UK regulators over failure to report tax issue

    Kristo Käärmann, who co-founded Wise in 2011, was on Monday ordered by the Financial Conduct Authority to pay a £350,000 fine.
    The FCA said that Käärmann failed to notify the regulator about him not paying a capital gains tax liability when he cashed in on shares worth £10 million in 2017.
    The watchdog found him in breach of its Senior Management Conduct Rule 4, which states: “You must disclose appropriately any information of which the FCA would reasonably expect notice.”

    Kristo Kaarmann, CEO and co-founder of Wise.
    Eoin Noonan | Sportsfile | Getty Images

    LONDON — Kristo Käärmann, the billionaire CEO of money transfer firm Wise, was slapped with a £350,000 ($454 million) fine by financial regulators in the U.K for failing to report an issue with his tax filings.
    Käärmann, who co-founded Wise in 2011 with fellow entrepreneur Taavet Hinrikus, was on Monday ordered by the Financial Conduct Authority (FCA) to pay the sizable penalty due to a breach of the watchdog’s senior manager conduct rule.

    The FCA said that Käärmann failed to notify the regulator about him not paying a capital gains tax liability when he cashed in on shares worth £10 million in 2017.
    The watchdog found him in breach of its Senior Management Conduct Rule 4, which states: “You must disclose appropriately any information of which the FCA would reasonably expect notice.”
    It comes after the Wise boss was hit with a separate £365,651 fine by U.K. tax collection agency Her Majesty’s Revenue and Customs (HMRC) in 2021 for being late to submitting his tax returns during the 2017/18 tax year.
    Käärmann’s name was added to HMRC’s public tax defaulters list. His tax liability for that year was £720,495, according to HMRC. He has a net worth of $1.8 billion, according to Forbes.

    ‘High standards’ expected

    The FCA said Monday that, between February 2021 and September 2021, the tax issues were relevant to its assessment of Käärmann’s fitness and propriety as a senior director of a financial services firm.

    Käärmann failed to consider the significance of the issues and notify the FCA despite being aware of them for over seven months, the regulator added.
    “We, and the public, expect high standards from leaders of financial firms, including being frank and open,” Therese Chambers, joint executive director of enforcement and oversight, said in a statement Monday.

    “It should have been obvious to Mr Käärmann that he needed to tell us about these issues which were highly relevant to our assessment of his fitness and propriety.” 
    Käärmann said in a statement Monday that he remains “focused on delivering the mission for Wise and achieving our long-term vision.” “After several years and full cooperation with the FCA, we have brought this process to a close,” he said.
    “We continue to build a product and a company that will serve our customers and owners for the decades to come,” Käärmann added.
    The chair of Wise, David Wells, said that the company’s board of directors “continues to take Wise’s regulatory obligations very seriously.”
    Wise’s board found that Käärmann was “fit and proper” to continue in his role at the firm after an internal investigation in 2021.
    As a result of that review, Käärmann was required by the board to take “remedial actions” to ensure his personal tax affairs were appropriately managed.

    Less severe than feared

    The value of the FCA’s fine is substantially lower than the potential maximum fine he could have faced.
    Käärmann could have been fined as much as £500,000 for his tax failings, but qualified for a 30% discount because he agreed to resolve the issues.

    News of the fine comes after Wise earlier this month reported a 17% increase in “underlying income,” which consists of cross-border revenue, card and other revenue, and interest income.
    Wise reiterated its target of achieving an underlying profit before tax margin of 13% to 16% over the medium term thanks to investments in pricing, and added that meant it wouldn’t have to make “further material investments in reduced pricing” in the second half of the year.
    In a note Monday, analysts at British investment bank Peel Hunt boosted their expectations for Wise’s full-year profit before tax by 15%. They have a £1,000 price target and a “buy” rating on the stock.
    “While Wise made no changes to the guidance set in June 2024, we expect a significant near-term beat,” Peel Hunt analysts Gautam Pillai and Barun Singh wrote in the note. 
    Käärmann and Hinrikus, both Estonian tech entrepreneurs who immigrated to the U.K., took Wise from a scrappy startup to a payments disruptor now worth £7.4 billion.
    They created Wise to offer a low-cost alternative to banks charging hidden fees for moving money across borders. More

  • 163 Shares189 Views

    in Business

    McDonald’s Quarter Pounder burgers to return to restaurants affected by E. coli outbreak

    McDonald’s is bringing the Quarter Pounder burger back to restaurants affected by an E. coli outbreak linked to the menu item.
    Health authorities have honed in the burger’s slivered onions, rather than its fresh beef patties, as the likely source for the outbreak.
    McDonald’s USA President Joe Erlinger apologized to customers who are feeling “ill, scared or uncertain” in a video posted on the company’s website.

    A double quarter pounder with cheese and fries arranged at a McDonald’s restaurant in El Sobrante, California, US, on Wednesday, Oct. 23, 2024. 
    David Paul Morris | Bloomberg | Getty Images

    McDonald’s Quarter Pounder burgers will return to roughly 900 restaurants this week after the fast-food giant pulled the menu item linked to a deadly E. coli outbreak.
    Affected restaurants — roughly a fifth of the company’s U.S. footprint — will be serving the Quarter Pounder burgers without slivered onions for the foreseeable future as health authorities continue their investigation into the source of the outbreak. That change will affect restaurants in Colorado, Kansas and Wyoming and portions of Idaho, Iowa, Missouri, Montana, Nebraska, Nevada, New Mexico, Oklahoma and Utah.

    “The issue appears to be contained to a particular ingredient and geography, and we remain very confident that any contaminated product related to this outbreak has been removed from our supply chain and is out of all McDonald’s restaurants,” Cesar Pina, chief supply chain officer for McDonald’s North American operations, said in a letter sent to the company’s U.S. system.
    The Colorado Department of Agriculture’s testing did not detect E. coli in samples of the beef patties taken from restaurants in the area, according to Pina. The agency isn’t planning further tests of the company’s beef.

    Stock chart icon

    McDonald’s, 1 month

    Instead, health authorities have honed in on slivered onions used in the Quarter Pounders as the likely suspect for the outbreak. The Food and Drug Administration is still investigating if onions produced by Taylor Farms are responsible. McDonald’s has stopped using Taylor Farms as a supplier for the ingredient indefinitely.
    McDonald’s is now asking its beef suppliers to produce a new supply of the fresh beef patties used in its Quarter Pounders, Pina wrote in a letter sent to the company’s U.S. system. Customers can expect to see the menu item back in all restaurants in the coming week, although it will happen on a rolling basis, depending on delivery and resupply operations.
    The Centers for Disease Control and Prevention said Friday that the E. coli outbreak linked to McDonald’s has led to 75 cases across 13 states. Out of 61 patients with information available, 22 have been hospitalized, and two people have developed a serious condition that can cause kidney failure, called hemolytic uremic syndrome. The agency also said previously that an older adult in Colorado died.

    Based on reported cases so far, the outbreak took place between Sept. 27 and Oct. 11. Over a two-week period, McDonald’s typically sells roughly one million Quarter Pounders in the affected region, according to company spokespeople.
    McDonald’s USA President Joe Erlinger apologized to customers who are feeling “ill, scared or uncertain” in a video posted on the company’s website.
    “On behalf of the McDonald’s system, I want you to hear from me: we are sorry,” he said.
    McDonald’s is expected to report its third-quarter earnings before the bell on Tuesday. Shares of the company have fallen 7% since the CDC linked the E. coli outbreak to its restaurants. More

  • 88 Shares99 Views

    in Finance

    America’s glorious economy should help Kamala Harris

    America was supposed to be in recession. When the Federal Reserve began to raise interest rates at the fastest pace since the early 1980s, few economists expected the economy to be heading into a presidential election in this state. Indeed, even a few months ago few thought things would be this good. Inflation-adjusted quarterly growth in annualised terms has averaged 2.9% since the start of 2023, above its long-term trend. On October 30th America will publish its GDP figure for this year’s third quarter. According to a usually reliable model from the Atlanta Fed, the economy probably expanded at an annualised pace of 3.3%, nearly twice as high as the median forecast in July, at the start of the quarter. More

  • 175 Shares169 Views

    in Business

    CDC says 75 people affected in E. coli outbreak linked to McDonald’s Quarter Pounders

    A deadly E. coli outbreak linked to McDonald’s Quarter Pounders has led to 75 cases in 13 states, the Centers for Disease Control and Prevention said Friday.
    It is the latest tally of people affected since the agency announced the outbreak on Tuesday.
    Health officials are closely examining the slivered onions used in the Quarter Pounders as a likely contaminant.

    A quarter pounder with cheese, fries and a drink arranged at a McDonald’s restaurant in El Sobrante, California, on Oct. 23, 2024.
    David Paul Morris | Bloomberg | Getty Images

    A deadly E. coli outbreak linked to McDonald’s Quarter Pounders has led to 75 cases in 13 states, the Centers for Disease Control and Prevention said Friday, as it investigates the source of the spread. 
    The outbreak has led to 22 hospitalizations and one previously reported death of an older adult in Colorado.

    Out of 61 patients with information available, 22 have been hospitalized and two people have developed a serious condition that can cause kidney failure, called hemolytic uremic syndrome. All of the 42 people who were interviewed by the CDC reported eating at McDonald’s, while 39 people reported eating a beef hamburger, the agency said.
    Those with infections ranged between ages 13 and 88, according to the CDC. The agency reiterated that the number of cases in the outbreak is likely much higher than what has been reported so far. The CDC added that the outbreak may not be limited to the states with related cases. That is because many patients do not test for E. coli and recover from an infection without receiving medical care, the CDC said. It also usually takes three to four weeks to determine if a sick person is part of an outbreak.
    Shares of the restaurant chain closed down 3% on Friday. The stock has fallen 7% since the CDC announced the outbreak on Tuesday, initially citing 49 cases and one death across 10 states.
    McDonald’s declined to comment on the update, citing the company’s statement when the outbreak was first announced.
    Quarter Pounder hamburgers are a core menu item for McDonald’s, raking in billions of dollars annually.

    Health officials are closely examining the slivered onions used in the Quarter Pounder as a likely contaminant. McDonald’s has instructed restaurants in the affected area to remove slivered onions from their supply, and has paused the distribution of that ingredient in the region.
    McDonald’s stores in Colorado, Kansas, Utah, Wyoming as well as parts of Idaho, Iowa, Missouri, Montana, Nebraska, Nevada, New Mexico and Oklahoma have temporarily stopped using Quarter Pounder slivered onions and beef patties, according to the CDC.
    McDonald’s identified California-based produce giant Taylor Farms as the supplier for the sliced onions the company removed from its supply chain. Taylor Farms has issued a recall on four raw onion products due to potential E. coli contamination. Burger King, Pizza Hut, KFC and Taco Bell have pulled onions from select restaurants in response to the outbreak.
    But federal agencies are also investigating the Quarter Pounder’s beef patty as a potential culprit.
    As the CDC and other federal agencies trace cases and work to contain the outbreak, McDonald’s has pulled Quarter Pounders from restaurants in the affected areas. Around a fifth of McDonald’s U.S. restaurants are not selling Quarter Pounder burgers.
    McDonald’s spokespeople said Wednesday that it is too early to tell if the outbreak is having any effect on traffic to its restaurants.
    The company is expected to report its third-quarter earnings on Tuesday and could share more details with investors about the situation on the conference call.
    The outbreak comes after several quarters of sluggish U.S. sales for McDonald’s. Price-sensitive consumers have not been visiting restaurants as much, leading McDonald’s and other fast-food chains to turn to value meals to boost sales. Wall Street analysts are expecting the company to report U.S. same-store sales growth of 0.5% for the third quarter, according to StreetAccount estimates.
    For now, McDonald’s is trying to reassure customers that its menu items are safe to eat and drink and that it is taking the outbreak seriously. Experts told CNBC that barring a more serious crisis, the damage to its brand may be minimal, as with an E. coli outbreak linked to Wendy’s two years ago.

    Don’t miss these insights from CNBC PRO More

  • 200 Shares189 Views

    in Business

    Spirit Airlines stock jumps 15% after struggling budget carrier said it will sell planes, cut jobs

    Spirit Airlines plans to cut jobs, sell planes and shrink its footprint next year.
    The budget carrier is struggling from the fallout of a scuttled acquisition, an engine recall and an oversupplied U.S. market
    Spirit shares are still down about 80% this year.

    Spirit Airlines baggage tags are seen near a check-in counter at the Austin-Bergstrom International Airport on April 10, 2024 in Austin, Texas. 
    Brandon Bell | Getty Images

    Spirit Airlines shares surged Friday after the struggling budget carrier said it would cut jobs and sell aircraft.
    The stock closed the day 16% higher, at $2.79 per share.

    The carrier late Thursday laid out a plan to reduce costs and raise cash by selling 23 older Airbus aircraft. That sale will bring in $519 million, Spirit said in a securities filing.
    It also said it will reduce costs by about $80 million, mostly through job cuts.

    Loading chart…

    Last week the airline again delayed a deadline to refinance more than $1 billion in debt until late December, giving it breathing room with its credit card processor.
    Spirit has struggled to return to profitability in the wake of the pandemic, facing a shift in travel demand and the grounding of dozens of Pratt & Whitney powered aircraft.
    Even with Friday’s jump, Spirit’s shares have tumbled more than 80% this year after a judge blocked its planned acquisition by JetBlue Airways.

    Spirit Airlines jetliners on the tarmac at Fort Lauderdale Hollywood International Airport. (Joe Cavaretta/South Florida Sun Sentinel/Tribune News Service via Getty Images)
    Joe Cavaretta | South Florida Sun-sentinel | Getty Images

    Spirit didn’t immediately comment on how many employees it will cut but said its 2025 capacity will be down in the mid-teen percentage point range compared with this year. It started furloughing about 200 pilots in September. Flight attendants “are well-positioned” because so many crew members took voluntary leaves of absence, according to the company.
    Earlier this week, The Wall Street Journal reported that Spirit and Frontier Airlines have revived merger discussions, sending shares higher. The airlines didn’t immediately comment. The two budget airlines had a merger agreement that was derailed by JetBlue’s April 2022 offer to purchase Spirit outright.
    Late Thursday, Spirit forecast a third-quarter negative operating margin of 24.5%, better than a previous estimate for as much as a negative 29% margin for the three-month period.

    Don’t miss these insights from CNBC PRO More

  • 200 Shares129 Views

    in Business

    This is why David Einhorn thinks Peloton could be worth five times what it is now

    David Einhorn’s Greenlight Capital has a $6.8 million stake in Peloton, and he thinks the company could be worth five times it current value, if it cuts more costs.
    If Peloton can generate $450 million in EBITDA, about double its current projections, it could reach a stock price of between $7.50 and $31.50 a share, Einhorn said at the Robin Hood Investors Conference.
    The Bike and Tread maker has focused on curbing costs and prioritizing profitability over growth after refinancing its debt earlier this year.

    David Enhorn pitches Peloton at the Robin Hood Investors Conference.
    Getty Images (L) | CNBC (R)

    Greenlight Capital’s David Einhorn thinks Peloton could trade as high as $31.50 a share if the company slashes costs, which could double its current adjusted EBITDA projections, CNBC has learned. 
    That’s about five times the current price of its shares, which were trading around $6.20 midday on Friday.

    In a pitch deck Einhorn presented at the Robin Hood Investors Conference on Wednesday, Einhorn pedaled on a Peloton bike as he explained the company’s many missteps over the years and the wide runway it has to turn its business around, according to a copy of the presentation obtained by CNBC.
    If it can generate $450 million in EBITDA, about double its current projections, Peloton could trade between $7.50 and $31.50 a share, based on a benchmark study of comparable companies, said Einhorn. 
    Notably, Greenlight’s analysis doesn’t assume “any growth in subscription revenues from new customers or price increases or other new initiatives, such as activation fees from the growing used bike market and international expansion,” Einhorn said. 
    “Facing bankruptcy can force change,” he said during the pitch. “Peloton has started to right-size and cash burn has stopped. It refinanced its debt to push out maturities. And with a loyal customer base that pays $44 per month, it’s a valuable subscription business.”
    Einhorn structured the presentation as if he was an instructor giving a workout class, occasionally shouting out investors in the room. The first page of the deck was titled “15 minute ‘Stock Pitch Ride'” and shows an image of Einhorn on a Peloton bike.

    Source: Greenlight

    “Let’s start with some shoutouts,” Einhorn said at the beginning of the pitch, calling out a number of investors and sponsors, similar to the way a Peloton instructor would call out class attendees.
    Each page of the deck shows a leaderboard of other apparent riders — including investor Bill Ackman and Robin Hood CEO Richard Buery — along with Einhorn’s speed, cadence and resistance, mimicking what users see while taking a Peloton bike class.
    Greenlight and Peloton declined comment to CNBC.
    Greenlight, which had a $6.8 million stake in the company as of June 30, conducted a benchmark study analyzing Peloton’s cost structure. The firm compared Peloton to three sets of peer companies: fitness businesses like Planet Fitness, consumer subscription companies like Chewy, and consumer online subscription businesses like Spotify and Netflix. 
    The study found that even though Peloton has already cut costs to curb its cash burn, it’s seeing “basically zero adjusted EBITDA versus the peer median of $406 million,” Einhorn stated in the pitch. 
    “For peers, over a third of gross profit flows through to EBITDA. Part of the problem is that Peloton spends too much on research and development,” said Einhorn. “Just as one example, Peloton spends about twice the R&D that Adidas spends … in dollar terms. And Adidas has 8 times more sales than Peloton and an order of magnitude more product lines.” 
    Peloton’s stock-based compensation expense of $305 million in fiscal 2024 is also double the peer median and comparable to far larger companies like Spotify and Netflix – which are 30 times and 140 times larger, respectively, Einhorn said. 
    At the heart of the thesis is Peloton’s high-margin subscription business, which generated $1.71 billion in revenue in fiscal 2024 with a gross margin of about 68%. If Peloton can make deep cost cuts, the company could generate far more free cash flow and EBITDA without needing to sell more bikes and treadmills, and without needing to grow its subscriber base. 
    Earlier this year, Peloton announced plans to lay off 15% of its staff, close retail showrooms, and adjust its international sales plans, among other cost savings initiatives. It expects those cuts could reduce annual run rate expenses by more than $200 million by the end of fiscal 2025.
    In August, Peloton said it expects it can post adjusted EBITDA of between $200 million and $250 million in fiscal 2025. But Einhorn said if the company gets its cost structure more in line with the benchmark, “there should be $400 – $500 million of EBITDA from the current subscription revenue base.” 
    Companies that generate that range of EBITDA tend to trade at nine to 32 times that amount, implying a potential Peloton share price of between $7.50 on the low end and $31.50 on the high end, if it reaches $450 million in EBITDA, he said. 
    To get there, Einhorn said the company needs new management. In August, Peloton’s interim co-CEO Karen Boone said she believes the new top executive will be in place by the time the company next reports earnings, which are now scheduled for Thursday. 
    “The nice part of our thesis is that we don’t have to convince Peloton this is the right approach,” said Einhorn. “Peloton’s interim co-CEOs are telling the same story of a recurring, high-margin subscription revenue stream business. They have also implemented an initial cost-cutting plan, which still leaves plenty of room for the new CEO.” 
    He said the company continues to garner top reviews among consumers and fitness publications and has a rabidly loyal customer base. He added that even though fitness buffs are returning to the gym, home workouts are here to stay.
    “Working out in the comfort of your own home is not a fad,” said Einhorn. “And a trend towards healthier lifestyles should all drive underlying subscriber growth over time.”

    Don’t miss these insights from CNBC PRO More