Pandemic Peloton (NASDAQ: $PTON) – An Emerging Leader Disrupting The Fitness Industry

Peloton stock price falls as it prepares to announce its Q2 earnings

As the pandemic impacts every aspect of life, Peloton (NASDAQ: $PTON)  found itself as a winner during these challenging times. Peloton is a technology, hardware and media company that is an innovator in the fitness industry.

 

Peloton Revenue Streams

Peloton generates revenue through its sale of its bikes, treadmills, and the sale of monthly subscriptions for their digital fitness platform. As gyms and fitness studios closed, many consumers turned to Peloton to maintain fitness. 

This increase in demand has resulted in over a 440% gain in 2020. But what’s next for Peloton? Can Peloton maintain subscriber growth and recurring revenue or is Peloton just another one of these “pandemic stocks?”

 

 

As the world begins to distribute COVID vaccines, how will Peloton experience continued success? There is no question that Peloton has a loyal base. Currently, they boast over 3.6 million subscribers with a 12 month retention rate of 92%. 

 

Peloton’s acquisition of Precor

Peloton recently acquired Precor, one of the leading global commercial fitness providers. Precor provides commercial fitness for hotels, spas, college campuses, etc. With Precor under house, Peloton has more reach into the commercial sphere.

However, Peloton has had production delays and problems with inventory as, leading to customer frustration. In fact, “supply constraints are having the effect of constraining Peloton’s sales and profits.” Precor will help alleviate Peloton’s production problems with its manufacturing capabilities.

 

 

Beyoncé Partnership

Additionally, Peloton has partnered with its most requested artist – global superstar Beyoncé. Beyoncé’s popularity will significantly increase Peloton’s brand awareness and demand. Fans will now be incentivized to experience Beyoncé themed workouts.

 

“This collaboration with Beyoncé is part of our unyielding pursuit to provide an engaging and motivating experience for our Members and leverage our products, platform and expertise to give our community better options for staying healthy and happy.”

 

Competitive Landscape

While Peloton continues to disrupt the fitness landscape, some competitors have appeared onto the scene. Lululemon (NASDAQ: $LULU), a popular athletic apparel company, acquired Mirror in June 2020.  Mirror is an at home workout equipment company that is seen as a competitor of Peloton but lacks the magnitude of Peloton’s user base. 

Additionally, Apple (NASDAQ: $AAPL) launched Apple Fitness+ on December 2020. Macquarie analyst Paul Golding believes that “Fitness+ could see some benefits from brand recognition and scaled hardware penetration already in place. One feature we found especially interesting is how Fitness+ leverages the Apple Music platform to allow subscribers to easily download songs/playlists from Fitness+ workouts to their Apple Music library.” 

While some believe Apple has its name recognition, Peloton continues to establish itself at the forefront of the fitness industry with its innovative business model and product offerings. 

 

Analyst Downgrade and Price Target

As Peloton’s earnings report nears, there have been some valuation concerns. In fact, UBS, a large Swiss bank, downgraded Peloton, lowering its price target from $158 to $124. Moreover, Peloton is currently operating at a loss but with continued demand and stimulus talks in the works, its stock price can potentially see more gains.  

 

What To Expect: Future Prospects and Growth

We have seen amazing pandemic-driven growth for Peloton but what happens when this is all over? Will we see a drop in demand as people return to the gyms and fitness studios? It seems that Peloton is beginning to prepare for a pandemic-less world. With Precor, Peloton will also establish a foothold in the commercial space setting itself up for the future.

If Peloton continues to innovate and find ways to establish itself not only as a pandemic is driven stock but as a profitable company, there is a chance of long term success

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Dylan Zhao

Dylan is a sophomore studying business economics and minoring in statistics at University of California, Los Angeles. He has worked at a boutique wealth management and venture capital firm and has found his passion for finance and investing. More specifically, he is interested in high tech and real estate investing. Dylan is fascinated by how statistics and artificial intelligence plays a role in investment management and services. In addition to his role at IBR, he provides pro bono consultancy for local LA businesses. In his spare time, Dylan loves to play sports and work out.