I paid almost $3,000 for a clothes rack. Or at least that’s what all my friends said to me when I decided to buy a Peloton. What they didn't know is that I have already logged 90 rides before I even bought the bike.
I'm head over heels in love with my Peloton.
For anyone who has been living under a rock, Peloton is the new start in home fitness. Except they have been around since 2012.
Peloton offers high-end exercise equipment (stationary bicycle and treadmill) with live and on-demand instructor led fitness classes to take at home. The classes are either streamed or recorded from their fitness studio in NYC. They also offer classes on meditation, yoga, stretching, HIIT, bootcamp, running and more from their tablet and phone apps.
Now that is out of the way, this is what you REALLY get with Peloton.
A high end bike that looks like a piece of artwork. Fancy shoes, water bottle, heart rate monitor, headphones, weights and slim fitted t shirts. A statement piece to put in your living room to show visitors that you have more money than sense. Some of that might be true.
But what you really get is Tony Robbins in Spandex.
A Peloton bike is really more like therapy with some fitness mixed in. And fitness and entertainment rolled in to one. (Fit-tainment? Is that a word yet? If not, I call dibs on coining it.) Where else would you find beautiful, charming and fit people telling you these things?
You got this hill and I got you.
Are you going to overcome your fear or are you going to let your fear overcome you? Easy. You are going to overcome.
Put on your crowns today.
The hardest part about today was showing up.
You have no idea what you are capable of.
Every single class has mantras and motivations just like this. There are instructors of all walks of life that represent the best in all of us coaching, motivating, challenging and sometimes flirting with us (I'm looking at you Jess King).
I'm not alone.
According to their website, Peloton has 2.6 million members with a 93% 12 month retention rate. That means it would take 14 years to lose their customers! Talk about stickiness. And those 2.6 million members completed over 44 million rides. In Q3 of 2020, they posted $524 million in revenue. Its had a 316% increase in annual revenue since 2017 - $219m to $915m!
Don't get too excited. Peloton still isn't profitable. Normally, a negative P/E really upsets me. But I love my Peloton bike so much I am still interested.
Its 2019 IPO was to raise funds to expand internationally. Then COVID-19 hit. And it ruined the world. It closed every gym.
Then Peloton soared. Peloton had a 66% increase in orders due to Covid-19 and a 94% increase in subscribers since the year prior. And its churn rate was the lowest its been in 4 years. More people are buying and fewer are leaving.
If it weren't for Covid-19, what would customers be doing?
Maybe the same thing. But look at the alternatives to Peloton.
Do nothing.
Go to a gym
Go to a spin class
Workout at home
Lots of people do 1. Most people will continue to do nothing for most of their lives. We don't care about those people right now.
What was shocking to read is that 65% of people in a survey by Schwinn Fitness prefer to wkrout at home. I assumed people love the gym. But only 20% of people have a gym membership. And even fewer use it.
The question I get asked all the time - why don't you just go to SoulCycle instead of wasting your money on a Peloton bike?
I can't. They all closed due to the Pandemic. Or at least they should.
I don't want to. I want to workout at home. Plus its cheaper to buy a Peloton.
SoulCycle doesn't sell memberships. They sell individual classes. And it STARTS at $25 and only goes up from there. Remember the 90 classes I took on my Peloton app? That would have cost me $2,250 for SoulCycle. It only cost me $30 for the iPad app.
Let's do some simple math.
I love my Peloton and will ride it 3 times per week for the first year I own it. I paid $2,900 up front for the bike and all the accessories. And I pay $39 a month for the membership. My first year I paid $3,368 for 156 classes. If I went to SoulCycle I would have paid a minimum of $3,900. So I already saved almost 10%.
What about 2 years in? I've paid $3836 total for my Peloton. And $7,800 for SoulCycle. But what if I want to ride 5 days a week? Now I'm paying $6,500 a year for SoulCycle. Plus I have to schedule a class online and be around people. And what if a class fills up?
Peloton is on demand 24/7. No wait times, no classes being sold out.
There's a hidden benefit to Peloton ownership. What if after 2 years I decide I'm done? I can actually resell my Peloton bike. There is a HUGE used demand for the bike. Right now, used Peloton bikes are being sold for over $2,000. But there aren't many to choose from. The salvage value of the bike makes the decision to buy a Peloton instead of going to SoulCycle even better.
But when will they be profitable?
Analyst and company predictions say 2023. But its hard to tell. It could be so much sooner - or it could never happen. International expansion will surely come with more expenses. Peloton has hardware costs which are variable, software costs which are more or less fixed, studio expenses and marketing. The spend roughly 35% of their revenue per year on marketing. That isn't going to go down anytime soon.
Investors love Peloton, too. Maybe too much.
The stock price has soared in 2020 - nearly 300%. Since P/E doesn't matter, we have to look at the P/B. And its over 12. Which is high.
The price may be high, but Peloton has the best product on the market. Customers are flocking to buy it. And more importantly they are staying to use it.
I may not have had the fitness transformation that so many Peloton members have had. And I haven't even enjoyed the meteoric rise the stock has given investors (I missed the boat on that one). But my future is much brighter because I bought a Peloton. And I think that is also true for the company.
Thanks for the insight Austin!