In the three months since Peloton last reported earnings, the world’s largest connected fitness platform bought a competitor, launched a new treadmill, addressed its shipping delays and announced plans to repair its damaged customer experience.
Amid these growing pains, Peloton’s stock has risen another 30 percent in the past 90 days, nearly doubling the gains posted by the Nasdaq 100 index (to which it was added last month) while raising its market value to more than $43 billion, which is roughly the same as Kraft Heinz, except that the ketchup king does over $25 billion in global sales and nets north of $2 billion.
It’s not like exercise bikes are some niche, new idea, but for the high-end workout enthusiast with $2,000 of disposable income, the Peloton experience continues to dominate the space, as the company counts 3.6 million members of its fitness platform.
But It’s Not Mac And Cheese
But unlike the steady-Eddie mac and cheese business, Peloton and connected fitness are hyper-growth stories, and the bet is clearly that the uptrend in at-home workouts will continue. At last check, the New York-based company delivered 232 percent growth in revenue, driven by 137 percent in fitness subscriptions. Within that subscription tally, Peloton reported 382 percent growth in its digital-only platform, which allows customers to access the library of content through a Roku or other streaming device for as little as $13 per month, without having to purchase — and wait for delivery of — the expensive hardware (bikes and treadmills).
Although more people are taking the value approach to using Peloton’s digital workout content, they still account for only 14 percent of its total subscriber base. What investors will want to hear is how Peloton is doing not just at acquiring new customers, but retaining its existing army of pedaling enthusiasts.
According to Peloton’s churn ratio of 0.65 percent — the gold-standard metric that it and other subscription-based services use — it’s doing just fine, as the company’s last-reported customer retention rate stood at an enviable 92 percent with the average customer doing over 20 workouts per month — up 2x from the prior year.
Getting Into Shape
Although Peloton has become a heavyweight versus its fitness equipment peers, such as NordicTrack or Echelon, the company said it still has a long way to go toward restoring its expectation of superior service. In November, it told investors to expect modest sequential revenue growth and warned that wait times for its new Bike+ product will likely be elevated for the next couple of quarters and that its margins will be under pressure.
“The strong reception of Bike+, combined with challenges associated with port congestion and COVID-19-related warehouse closures, impacted Bike+ delivery dates for many of our customers and caused significant Member experience challenges,” Peloton said. “Therefore, we are incurring additional shipping-related expenses [in October, November and December] to alleviate some of the delays ahead of the Holiday period.”
The company has not updated its full-year forecast and continues to expect to do $3.9 billion in revenues. Investors will also be wanting to hear how the $420 million Precor acquisition is progressing, which was done in part to bring manufacturing on-shore and start producing connected fitness products in the U.S. before the end of the calendar year 2021.
Peloton will report its fiscal Q2 earnings, and host an investor call, after the close of trading on Thursday (Feb. 4).
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