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Planet Fitness: Revenge Body 101

Planet Fitness
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New Year, New You.  

Today we are talking about Planet Fitness, so you can get in the mood to kick-start your revenge body campaign.  Planet Fitness is the largest operator of fitness centers in the United States (measured by number of members).  The company went public in 2015 and now sports a market cap of nearly $7 billion. 

The Model:

Planet Fitness is a low-cost gym that offers subscription fitness memberships starting at just $10 per month.  Their target customer is the 80% of the population that does not belong to a gym and those who may feel intimidated by the traditional gym experience.  For example, behaviors such as “grunting, dropping weights or judging others are not allowed.”  At Equinox, those activities are more or less the point of membership.  

Planet Fitness has over 12 million members across its 1,700 stores.  The average Planet Fitness does roughly $2 million in revenue per year and has EBITDA margins (a proxy for cash flow) of 46%.  The company has achieved 48 consecutive quarters (12 years) of same-store-sales growth.

The secret sauce: Planet Fitness can offer fitness memberships at such a low price because they have cut out many of the extraneous features a traditional gym might offer.  You won’t find fitness classes, pools, daycare facilities or juice bars at a Planet Fitness.  

Kinda Like McDonald’s:  Planet Fitness utilizes a franchise model (96% of units are franchised, while 4% are owned by corporate).  This has allowed the company to grow its store count at a faster rate than would otherwise be possible, as they use their franchisees’ capital to open new locations.  From 2014 through 2019, they opened over 900 locations and grew their store count at an annual growth rate of over 17%.  

The Threat?

In the world of fitness, innovative companies such as Peloton are making the rest of the industry sweat.  Peloton completed its initial public offering in late September, raising $1.2 billion in the process.  While that cash haul will certainly put Peloton in a position to grab market share from competitors, many analysts believe Planet Fitness will be spared, as their customer bases don’t have significant overlap.  A Peloton subscription costs $39 per month, and that’s after spending nearly $2k for a single bike. At that price point, Peloton can hardly be compared to a Planet Fitness membership, which costs less than Netflix.

The Takeaway

Planet Fitness shares have been on a tear since their IPO in August 2015.  The company made its debut at $16 per share.  Last Friday, they closed at $79.75 per share, up nearly 400%. Many competitors haven’t fared as well.  Nautilus, the maker of Bowflex equipment, is down over 90% during the same period.  The takeaway: in fitness, consumers can be fickle.  And today’s Orangetheory could be tomorrow’s Zumba. 

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