(The author is a Reuters Breakingviews columnist. The opinions expressed are her own. )


NEW YORK - For a while, Peloton Interactive and Netflix had it easy. Companies that enhanced life from home had rapid growth during the pandemic, and stock prices reflected those fortunes. On Thursday, it became clear times are tougher. The darlings of the past two years now need reinvention.

Netflix lost a fifth of its $225 billion market capitalization after the stock market closed on Thursday. The company is still growing, and still expects to gain 2.5 million subscribers in the first three months of the year. But that’s half what analysts were expecting, according to Refinitiv, and every little bit counts for a company valued at 7 times forward sales.

Peloton had an even worse spill, losing a quarter of what on Wednesday had been a $10.4 billion market value. Chief Executive John Foley said he was planning to cut back on staff while CBNC reported the maker of high-tech exercise equipment was pausing bike production. Peloton has been plagued by lawsuits and growth is already slowing.

Both companies’ stock prices are near or below pre-pandemic levels. But the idea that they haven’t gained in worth since Covid-19 emerged is too harsh. Consumers have formed habits that won’t change. Yet investors value Netflix’s future earnings less highly than they did. It trades at a multiple of EBITDA that’s 20% lower than in February 2020. Peloton’s enterprise value-to-sales multiple has halved over the same time.

Part of the problem is that success invites copycats: AT&T’s HBO+ is nipping at Netflix’s heels. Companies from Gold’s Gym to Apple have exercise classes that can be beamed into living rooms. Companies can ratchet up competition, but that means either sacrificing revenue through price cuts, or sacrificing profit through more investment in new or better products.

The other option is to change direction. Netflix did that once before, ditching mail-order DVDs for streaming TV. But a quick way to find new growth is to buy it – by acquiring rivals or companies in new markets. Netflix could try to buy gaming group Activision; maybe Peloton could merge with fitness rival Lululemon. If that’s the plan, they should do it before their stock falls much further.



- Shares in video-streaming company Netflix opened on Jan. 21 more than 20% down from the previous day's close after it projected it would add only 2.5 million customers in the first three months of 2022, less than half the number estimated by analysts, according to Reuters.

- On Jan. 20, shares in Peloton Interactive lost a quarter of their value after the provider of at-home exercise equipment and online classes said that it was reviewing the size of its workforce. CNBC also reported that it was pausing hardware production.

(The author is a Reuters Breakingviews columnist. The opinions expressed are her own. )

(Editing by John Foley and Sharon Lam) ((For previous columns by the author, Reuters customers can click on SILVA/ SIGN UP FOR BREAKINGVIEWS EMAIL ALERTS https://bit.ly/BVsubscribe | Lauren.SilvaLaughlin@thomsonreuters.com))