Peloton: A Fitness Company in Good Shape

New York-based Peloton saw its member base, which includes exercise bike and treadmill owners as well as mobile app users, grow from 1.4 million at the time of its September 2019 IPO to 3.1 million by July 2020. The company benefited from the home fitness surge spurred by COVID-19, which meant Peloton’s membership tripled in 2020. Peloton’s business model relies on sales of internet-connected exercise bikes and treadmills for 2245 USD and 4395 USD respectively. Members pay 39 USD per month for All-Access Membership in order to access online classes which incorporate their bikes and treadmills. Peloton also offers Digital Membership for 12.99 USD per month for customers without equipment who want access to workouts on their phone, tablet and TV.


Despite revenue rising 128% in Q4 2020 to 1.06 billion USD, beating forecasts by 2.9%, and a third successive quarterly net profit of 63.6 million USD, Peloton’s latest quarterly results failed to dazzle investors. This came alongside news of difficulties in delivering their flagship bikes and treadmills on time. According to Peloton’s CFO, Jill Woodworth, the delays are caused by more than just manufacturing issues. A significant portion of the issue relates to ocean freight, namely container shortage, shipping delays and backlogs to unload containers. Delays are so severe that CEO John Foley issued an apology to frustrated customers who have complained of multi-month delays and poor communication. As a result, their share price dropped 8%, from 157.14 USD to 144.96 USD between January 25th and January 27th. Peloton has since committed to a 100 million USD investment in expedited ocean freight and air freight over the next 6 months to improve the currently drawn out wait times. According to the group, while profitability will decrease in the short term, the investment will improve member experience, which is Peloton’s top priority. Manufacturing pace should benefit from Peloton’s recent 420 million USD purchase of Precor in late December 2020. Precor is one of the world’s largest fitness equipment manufacturers and will likely significantly boost Peloton’s production capacity. The market has reacted positively to Peloton’s response, with PTON rising 7% on February 4th.


There is little doubt that Peloton’s success has been driven by huge growth in interest in health and fitness. In the US, 2020 Q3 figures showed a 21% rise in spending on recreational goods and vehicles since the previous year. Home gyms have grown too, with retailer Dick’s Sporting Goods reporting a 20% growth in sales in the three months to August 2020. While midweek exercise was relatively hard to plan pre-COVID-19, lockdown has lessened commuting and the frequency of business trips and freed up previously meeting-packed schedules. Days are much more predictable and frequent exercise provides a mental escape. This exercise boom has benefitted other popular exercise products such as Strava, who gained 2 million new users per month in 2020 and Fitbit, who saw the number of logged activities increase across the board, particularly for yoga and rollerblading where usage tripled in 2020 versus 2019. In contrast, traditional gyms have struggled, with 24 Hour Fitness contemplating bankruptcy and many have been forced to adapt to restrictions and changes in consumer mentality – for example, in an attempt to compete with Peloton, SoulCycle are selling their own exercise bikes for 2500 USD.


A key point of concern for analysts is whether Peloton can maintain its growth rates in membership and revenue once normal life resumes. Once consumers return to work and busier lives, it is unclear whether consumers will still have time for Peloton. Furthermore, there are questions over whether those who do continue to exercise will return to traditional brick and mortar gyms, rather than working out at home, once they are available again. To justify their valuation, Peloton must prove they can maintain their membership base. The large sunk cost of their equipment provides an argument in favour of Peloton. It seems unlikely that consumers who have paid thousands of dollars for Peloton equipment will give up their All-Access Memberships. However, for Digital Membership, future success appears much more unclear as customers aren’t tied into the Peloton ecosystem.


By Charles Fraser

Sector Head: Gregor MacDonald