With a performance of more than 200 per cent year-to-date, Peloton (PTON) should be on everyone’s watchlist. In this blog post, we dig into the company's DNA, explore the reasons behind their success and the different variables investors should look at.
Peloton: more than an exercise bike
Peloton is an American exercise equipment company founded in 2012. After a Kickstarter funding campaign, the company was able to produce its first bikes.
Today, the company offers two types of physical products: a stationary bicycle and a treadmill. Manufactured with high quality, fully adjustable, compact, quiet and immersive, they are nothing less than “the best cardio machines on the planet”, according to Men’s Health.
In addition, there is a big screen attached to both machines which lets users participate in remote classes – streamed from the company’s fitness studio which they can access through a paid membership, play their favourite music and so on. The classes are recorded daily and available online 24/7. The user can connect the machine to his Apple music or Spotify account to listen to his Favourite playlist.
For those who do not have the money to spend on a sophisticated machine, Peloton also offers workouts through its digital app for the price of $12.99 a month. This cheaper and no less healthy option is seducing more and more customers, with a 64% growth rate over the last quarter, reaching 176’600 users. In fact, 60% of the bike owners also use the mobile app.
Very rapid growth
The company has, at the time of writing, over 2.6 million active users. Despite important investment made in manufacturing capabilities, the company is struggling to cope with surging demand. This race to satisfy growing sales is a strong indicator that demand will keep growing later this year and early in 2021. The stock price reflects this success, as it grew 200% year to date.
With such a success, it is easy to imagine a strong continuity. As Brian Sozzi (Yahoo Finance’s editor) notes: the Apple watch did not come out at the same time as the iPhone. I would even add that the iPhone only came after the iPod and is now well ahead in sales. All this to say that if they can capitalize on their recent success and keep innovating, Peloton could be in a really great place right now.
Peloton has recently announced the 15% price cut of its most popular product – their main bike from $2’245 to $1’895 -, and the launch of a new range of fitness products. This includes a cheaper version of their existing treadmill, the introduction of their new “Bike +”, accompanied with a brand new 23.8-inch rotating HD screen and new functionalities. With an important success due to the pandemic and users practising sport at home, the company seems to have decided that it was time to increase their speed and expand services.
While we might regret that the company does not provide even more diversified products at a time where gyms are closed and people are looking for new ways to do sport at home, we must note that Peloton is focused on doing what it does well.
Macquarie analyst Sarah Stein argues that these new products come at a very important time where people will have to choose between doing sport at home or dare returning to opening gyms. Do I want to invest in an at-home machine that I can use all the time, or do I go for the classic gym membership that can be taken away in the case of a new pandemic wave? Here lies the full complexity of the choice. In any case, Stein assures that the more accessible price point will ensure a greater market share, especially with the new treadmill, as many customers will want to add complementary units to their at-home gym.
Read our next article: Thinking about volatility in directional trading strategies