It’s been quite the year for Peloton. The business has flourished as people are forced to rethink how they work, travel, and, most importantly, exercise. The pandemic crafted almost perfect conditions for Peloton to thrive as gyms shut and people shifted en masse to home workouts. As a result, the company has been posting record numbers and can’t make its famous exercise bikes quick enough to sate demand. At the end of a historic year, we ask: should you watch Peloton stock?
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The bull case for Peloton
Thanks to a seemingly sky-high price for an exercise bike and not helped by an infamous tone-deaf Christmas commercial last year, Peloton started the year with a lot of skepticism in investing circles. However, it has proved its naysayers wrong and the stock is up more than 250% year-to-date thanks to some astonishing numbers. Let’s look at why.
First of all, what many people view as the company’s main weakness, its hefty price, is actually a great strength. Sure, $2,000 for a bike that doesn’t actually go anywhere might sound steep, but compared to well-known alternatives such as SoulCycle, it is actually cheaper. In the U.S. a Peloton bike sells for $1,895 including delivery and set up, but has a $49, no interest, monthly payment plan. Add on the standard subscription of $39, and you’re looking at $88 per month. That may seem like a lot, but according to Peloton, the average subscriber does 20.7 workouts per month, which boils down to $4.25 per class. SoulCycle charges up to $35 per class. Also consider that the average cost of gym membership per month in the U.S. is $58, not including add-on costs such as travel and classes.
Another reason to be bullish on Peloton is its rapid subscriber growth. Connected fitness members grew 137% in the past year to 1.33 million, while paid Digital Subscriptions grew 382% to 510,000. Not only is its base growing at breakneck speed, but it’s also more engaged. The average monthly workout per connected fitness subscription last quarter 20.7, up from 11.7 this time last year. All of this has led to some record numbers, with Peloton bringing in a whopping $757.9 million in revenue this quarter, up 232% year-over-year. Yes, the pandemic has conjured a perfect storm, but numbers like this just can’t be overlooked.
The bear case for Peloton
The positive vaccine news earlier this month was a joyous occasion for pretty much everyone except Peloton’s bottom line. The stock fell 20% in one day as investors saw a sliver of light at the end of the tunnel and moved away from the ‘stay-at-home’ stocks. Of course, we all know this pandemic will end eventually but the speed at which an effective vaccine looks set to come to market was a bit of a shock to Wall Street and stocks suited to the pandemic were crushed. Will Peloton be able to maintain its growth trajectory as economies begin to open up?
Another factor to consider before investing in Peloton is the increased competition it faces. Some big names have targeted connected fitness and will look to steal some of Peloton’s lunch. Lululemon’s acquisition of Mirror has established itself as a name in the space, while the launch of Apple Fitness+ as part of the Apple One service bundle will be sure to raise some eyebrows. It’s usually a sign that you’re doing something right when big names like this try to move in on your territory, and while they do not provide the same level of service – AKA Beyonce! – they will be sure to have Peloton on its toes.
So, should I watch Peloton stock?
Despite its often-mocked image of being an upper-class stock for the privileged, Peloton makes a strong case for investors. Financing plans on hardware make it affordable, and its products have a very high resale value. All this combined with a competitive subscription price makes the product good value when spread over a few years.
It is also one of the few ‘pure plays’ out there, being solely concentrated on what it does — connected fitness. With the coronavirus likely to live on the public’s mind long after it has passed, at-home options could well be the future of exercise, and Peloton is beautifully positioned to benefit from this change in attitude.
Peloton instructors cannot see users’ heart rate or screen, and can only see output, cadence, and resistance.
Peloton prohibits users from modifying the bike to download other apps like Hulu or Netflix.
Yes, in its most recent quarter Peloton posted a net profit of $69.3 million or $0.20 per share.
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