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Peloton Shares Are Recovering After a Rough Holiday Ride

Peloton
Photo Credit: Peloton.

New Years Resolution Stock
Peloton shares led the metaphorical pack on Monday, rising nearly 5% after an analyst at Baird rated the company a buy and a “fresh pick.”  The positive note helped lift shares above the company’s initial public offering price of $29.

Peloton’s September IPO was one of the most highly-anticipated of 2019.  The company, which describes itself as the “largest interactive fitness program in the world,” has garnered significant interest from investors and consumers alike.

What’s Working
Peloton has a simple business model.  They sell two main products – stationary bikes for $2,245 and treadmills for $4,295.  These two devices account for 70% of the company’s revenue.  On top of the hardware, the company charges a subscription fee of $39 per month for access to live classes and curated training programs.  This tidy offering has attracted more than 560k subscribers.

It’s a Bargain?  Clearly, Peloton is an expensive product that caters to premium clientele.  But the company is increasingly marketing itself as an “accessible” luxury relative to other fitness programs. 

How? On both its bike and treadmill, Peloton offers 0% APR financing for 39 months.  So similar to a car payment, Peloton markets the bike based on a monthly cost of just $97.  They rank that cost vs. other popular fitness products (NYC metro area prices):

  • Flywheel:  $300 per month (12 class pack)
  • Equinox: $260 per month (global access)
  • ClassPass: $159 (rate for 10-15 classes)

 

Peloton has also launched a 30-day home trial period.  This program has helped incentivize more customers to try the product and is reportedly driving conversion.

What’s Not Working
The Lawsuits:  During Peloton’s IPO process they were hit with a $300 million copyright infringement lawsuit.  A group of music publishers filed the claim alleging Peloton used more than 2,000 songs in their fitness classes without securing proper permissions.   

Peloton has denied the claim and filed a countersuit of their own.  Nonetheless, the company was forced to remove many songs from their platform including those by Drake, Justin Timberlake, and Lady Gaga.  Since then, many riders have complained the classes have only “low quality 80s music,” and their interest in riding has dwindled.

The Marketing: Right before the holiday rush, Peloton found itself in hot water over a big-time advertising gaffe.  While Peloton denied the infamous commercial was sexist and misogynistic, the bad press surrounding the ad was enough to send shares down 15% in the wake of the incident. 

The Inside Scoop
Peloton sports a market cap of $8 billion reflecting continued excitement for the prospects of the connected fitness platform.  Going forward, a key metric investors will need to monitor is monthly subscriber churn.  So far, riders seem to remain engaged.  The stock price performance will hinge on that staying the case.

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