Why is everyone talking about Peloton Stock?
Up to 439% This year, platoon (NASDAQ: PTON) was one of the major stock market winners of 2020. If you were daring enough to invest in the IPO 15 months ago, you would be sitting on an even bigger gain right now.
So what is going on here? The onset of the coronavirus pandemic earlier in the year provided the perfect tailwind for the connected fitness company, as the closure of gyms across the country has forced workout enthusiasts to find ways to exercise at home.
Peloton grew from 712,000 connected fitness subscribers (those who purchased equipment) as of December 31, 2019 to more than 1.3 million. And last quarter revenue has skyrocketed 232% year over year to $ 757.9 million.
However, The impressive success of the peloton does not go without competition. Home fitness is proving to be a lucrative market, and it is increasingly crowded. Plus, there are still traditional gyms and fitness studios to worry about.
While it’s clear that Peloton is pulling all cylinders, how much of this consumer demand that will remain in a post-pandemic world is uncertain. There are some important considerations that investors should take into account as users have unlimited workout options.
Even though gyms across the country have started to open, Peloton continues to pedal. The company had to move its manufacturing capacities in order to cope with the high demand. “Continued high global demand for our products resulted in an increased backlog of shipments at the end of the first quarter,” CFO Jill Woodworth said in the last quarter. earnings call.
Even if management believes Peloton’s Bike deliveries should return to a normal schedule by the end of the calendar year, they still expect Bike + deliveries to experience delays for “a few more quarters”. The visibility of such strong demand by 2021 is great news for stock owners.
However, it also comes with negative consequences, especially from impatient customers who decide to choose competing products such as Nautilus‘s Bowflex and NordicTrack from ICON Health & Fitness. Both know the soaring Sales due to the pandemic.
But Peloton’s recent $ 420 million acquisition of fitness equipment maker Precor will certainly solve supply chain issues by expanding manufacturing capacity closer to customers in the United States, with additional facilities in North Carolina. North and Washington State.
Gyms aren’t going to go away either. In fact, a hybrid workout routine seems reasonable to many people. According to a investigation conducted by Beachbody, over 63% of Americans who exercise regularly say they will likely prefer a mix of exercise in the gym and at home.
Peloton’s success is mainly due to the company’s desire to continue to improve the user experience. Its training library is strengthened by new partnerships, most recently with Beyonce. The megastar is the most requested artist by Peloton members, and this new alliance will include themed workouts with her music.
The more subscribers Peloton adds, the more revenue it generates, the more it can spend on content, which ultimately attracts more members. This is the classic flywheel effect, and Peloton’s relentless focus on content should help keep its lead over new competition from Lululemon Athleticathe mirror and Applethe Fitness + offer of.
The advantage of Mirror over Peloton is that it takes up less space, which means consumers don’t need to devote an entire room to training. Even so, it will be quite difficult to create a cult following around the product like Peloton did.
On the other hand, Apple Fitness + is just a cheaper digital version only of Peloton offer. The caveat is that you have to own an Apple Watch, which I doubt many people will buy just to get access to Fitness +. I think Peloton is protected here simply because its bread and butter are these connected fitness subscribers who are stickier consumers since they made the initial four-figure investment in equipment.
In addition, the purchase of Precor, which is expected to be finalized early next year, propels Peloton into the commercial space. Precor provides equipment for gyms, hotels, college campuses and other corporate environments, giving Peloton a larger addressable market than its peers can match.
What Should Investors Do?
Peloton’s stock experienced a rapid rise in a short period of time, as its market capitalization is currently $ 47 billion. Investors also enthusiastically received the news of the purchase of Precor – the stock jumped 14% after the Dec.21 announcement.
Price for perfection, it seems expensive no matter which metric you use. Despite strong demand for its products, even with a slow return to normal and increasing competition from old and new enemies, investors are expected to take some profit off the table.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.