Investor Insights:

  • In the past decade, fitness enthusiasts have flocked to stationary cycling classes.
  • One fitness company’s customers pay only $40 a month for membership.
  • Wall Street expects its revenue to grow fivefold by 2024.

Every decade brings a new fitness craze.

The ’80s gave us step classes, where sweaty participants would jump up and down on an elevated step.

The ’90s witnessed the opening of soul-inspiring yoga studios, bringing a 5,000-year-old Indian well-being practice to the masses.

The turn of the century introduced us to powerlifting and CrossFit classes … as well as slipped discs and hernias.

In the past decade, fitness enthusiasts have flocked to stationary cycling classes at Equinox, SoulCycle and Flywheel. These purveyors of parked pedaling charge up to $72 for a 45-minute class.

And now one public company is taking the indoor cycling craze directly to your home…

Fitness Classes in Your Living Room

Peloton Interactive Inc. (Nasdaq: PTON) is an American exercise equipment and fitness company that uses technology to put users right in the fitness studio.

Founded in 2012 on the back of the indoor cycling craze, it sells two types of fitness machines: a $2,245 exercise bike and a $4,295 treadmill.

The company’s exercise equipment features large tablets, where users can stream, follow and interact with live and recorded fitness classes.

In addition to buying the bike, customers pay $40 a month for membership, which includes not only cycling but also yoga, meditation, boot camps, walking, running and strength training.

Classes can also stream to a mobile device or laptop, allowing users to take noncycling workouts on the go.

The Peloton app tracks your fitness progress by recording your workouts on the bike. Users can also connect with and follow other Peloton customers.

Peloton’s Big Debut on Wall Street

The company went public in late September at $29 a share, garnering an $8 billion valuation.

Caught up in the general malaise of the initial public offering world, the stock quickly fell to $21 a share. It then rebounded to a high of $36.85 this month.

In Peloton’s 2019 fiscal year, the company sold 577,000 fitness machines, earning revenue of $719.2 million.

That more than doubled 2018’s $348.6 million and more than tripled 2017’s $183.5 million.

It also has 511,000 subscribers to the core streaming offering paying $40 a month. Additionally, another 102,000 people pay $20 for a lesser subscription.

Peloton will report close to $1 billion in total revenue for 2019. Wall Street expects revenue to grow fivefold to $5.25 billion by 2024.

That’s also the first year Wall Street expects Peloton to be profitable.

Losses in the Near Term

The growth is there … but the earnings aren’t.

Even though gross margins are above 40% for its equipment and subscriptions, Peloton has been heavily spending on sales and marketing.

Losses are growing faster than revenue. Net loss in 2019 was $195.6 million, up from $47.9 million in 2018.

If you want growth but don’t mind owning a company with losses in the near term, consider buying shares of Peloton right now.


Ian King

Editor, Automatic Fortunes

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