With an inspiring story, robust team of instructors and a hyper engaged community,
Peloton became a household name during the pandemic.
The at home exercise equipment company that sells bikes and treadmills made cycling at home cool
again. Peloton stock surged more than five hundred percent during the pandemic, boosting a
small startup into mega cap status in less than a year.
I pivoted to a bike and received it in April 2020 and sort of jumped head
first. Loved it.
Really enjoyed the class content.
It was as close to a community that you could find without being able to go to the studios that I typically
frequented.
Now people are starting to go out again as more get vaccinated and sign up for booster shots.
Gyms and in-person studios are open, slowing demand for Peloton equipment and
competition in the at-Home fitness space is ramping up.
Companies like Mirror, Tonal, Hydro and Echelon are giving people more options to work out than
ever before. Peloton reported disappointing first quarter results, which missed on both earnings and
revenue, casting doubt on its future growth prospects.
Investors are now questioning whether there's more room to run in the stock and whether the at home
fitness boom will continue.
The reality is it's a great product.
We still have yet to determine if it's more than a one trick pony.
Can Peloton compete in the crowded health and wellness sector as the world adjusts to a new normal?
Peloton first launched its IPO on September of 2019 with an initial price of twenty nine
dollars a share. As the pandemic extended, that price hit an all time high of one hundred and
sixty two point seventy six on December 23, 2020.
In January 2021, Peloton was worth $45 billion dollars.
Peloton went from being unknown to being one of the top brands in the history of the world in
maybe the shortest amount of time we've ever seen.
So to their infinite credit, Peloton's branding is the best.
I don't know how it happens, but live rides really do feel like a live experience.
The energy is different.
You get a chance to be a part of a really fun experience.
Peloton sells bikes and treadmills that range from a $1495 for its most basic
bike to $2945 for its treadmills.
But as more people get vaccinated, the economy is opening up again.
What's clearly happening here is people are leaving their basements and they're going back to the gym.
I'm of the view that we're going to return to a more in-person economy.
We don't think that at home fitness is going to fade completely.
But the trend has clearly peaked, and now we're going to go back to a resumption of a
majority of people working out in person, whether it's boutique fitness like exponential or
Planet Fitness as well.
In May 2021, Peloton had to recall all of its treadmills after reports of
injuries and one death.
It led to an investigation by the Securities and Exchange Commission and an apology from Peloton
CEO John Foley for not cooperating with the U.S.
Consumer Product Safety Commission sooner.
Peloton relaunched its treadmills with new safety features after the controversy, but a few months
later reported disappointing first quarter results.
Peloton's most recent earnings also show slowing demand for its products and its first quarter.
Peloton missed on earnings revenue projections and slashed its full year projections.
The ride is slowing down. Shares are down twenty two percent as first quarter results failed to beat expectations.
And much like last quarter, Peloton points out, the environment is still challenging with supply chain
constraints commodity cost pressures.
In November 2021, Peloton shed $10 billion of its market cap as the stock
price plummeted.
The company also announced it would stop hiring across all departments and later sold about a
billion of its stock to raise cash.
At the same time, competition for at-Home fitness products have increased.
The pandemic created this amazing environment for Peloton demand,
but it also brought a host of competitors.
We're going to continue to see now this as the market space grows, as
increasing amount of companies realize that this is a new industry that should be unlocked.
The fight for customers mindshare is going to get harder.
So as more customers understand that connected fitness is something they should consider, there's going to
be more companies that are vying for that spot.
What we have found is a one player industry is now
becoming a multi player sector, and that's a different proposition.
Competitors like Tonal, Hydro, Lululemon's Mirror and even Apple are
jumping in the fitness space by offering innovative fitness products to lure in customers.
Tonal, seller of an at-Home strength training product with machine learning, says it's achieved nearly
three times sales year over year since last October and is expecting November to be the
biggest sales month ever.
What we really saw was an acceleration in in the shift to at home workouts.
For us, it was just it was an opportunity to build a lot of brand awareness in a short period of time and accelerate our
business when folks talk about reopening, when they talk about vaccine rollouts.
It has not affected our business.
We don't see it in our numbers at all.
We have continued to see month over month growth throughout all of the reopening through all the vaccine
rollouts.
Hydro, makers of an at home rowing machine is another company that says it has seen
accelerated growth during the pandemic.
It had a really positive impact on our sales and we grew five hundred percent in 2020.
We set a sales record in September of this year.
Then we set another record for October and then we set another record in November with sales.
So we continue to see massive acceleration.
There are also cheaper options like Echelon, which offers indoor bikes for just $899
versus Peloton's $1495.
Mirror, owned by Lululemon, is another home gym which boasts it has over ten thousand
classes on demand.
Big Tech players like Apple also launched Fitness Plus, which includes nine different types of
workouts everything from hit yoga, rowing and dance.
And as more and more people get vaccinated, they are using a hybrid method of working out.
Ashley Webb, an avid Peloton user, says she has been going to her in-person gym
and using her Peloton bike to work out.
I've canceled other memberships and don't plan on reactivating them for in-person studios, but the few
boutique studios that I have here in town that I really enjoy, I'll go back to.
But it's going to be a compliment, not a swap out.
Again, it's your brain sort of tricking you, but it feels like you're meeting people to run.
You have the accountability, the commitment and you cheer everybody on, she said.
Peloton products helped her train for her first triathlon and returned her confidence in
running.
I now engage with my tread more frequently than I do my bike, and I
signed up for a half marathon.
Peloton is now trying to pivot away from just selling hardware to rebrand itself into a health and
wellness brand. The company has what's called mood rides, a set of special classes with a
workout and musical theme designed to fit your mood for that day.
It also announced a collaboration with Delta Airlines to offer meditation classes to passengers.
Peloton also launched its own private label clothing line in September of Twenty Twenty One.
I think those strategies are good in the sense that they continue to reinforce the community of the business and the
brand power that the company has, so that's smart.
Although those types of strategies we've learned from other companies is just they're not enough
most likely to move the needle incrementally from here.
Remember, at the end of the day, it's mostly going to be about selling bikes and selling subscriptions and in less
about these ancillary businesses or tangential businesses.
And if those tangential businesses aren't big enough to move the story, they're probably not big enough to move the
stock.
CNBC reached out to Peloton for comment, but did not receive one at the time of publication.
Other than its focus on bringing awareness to mental health and overall wellness, Peloton
has also invested money in its hardware business.
In April 2021, Peloton bought Precor, one of the largest global commercial
fitness equipment providers, in a $420 million deal to ramp up its U.S.
manufacturing capacity.
The company is also moving towards putting their bikes and treads in commercial settings such as
health clubs, universities and hotels to capitalize on a reopening
economy. Despite the negative news around
Peloton, the company's growth story is undeniably impressive.
A small startup quickly became a mega-cap company in less than a year and despite many who
have sold the stock.
One analyst says he remains upbeat on Peloton.
We think that this is still growth at a very scaled level, and it shouldn't
be discounted necessarily to the extent that it has been.
I think it's a very volatile environment and it's very hard to to pin down
expectations. But part of our thesis on the long term growth story for Peloton is
not only new SKUs.
In other words, new products, but also new regions.
And thirdly, the commercial angle, because the commercial opportunity would
be to sell Precor equipment and potentially Peloton equipment into brick and mortar facilities that were
reopening post-pandemic.
So if we're going to be looking for indications of where progress may be happening for each of those?
Others think the companies may mark the end of its pandemic boom,
I think that the reality is Peloton's all time stock highs appear increasingly
detached from reality.
The question that we have to ask now is what is the underlying level of demand?
What is the underlying membership opportunity?
And ultimately what's going to be the underlying churn rate?
Because all three of those factors were diluted pretty heavily with rose colored
glasses during the pandemic.