As Peloton continues to grow, digital fitness has become a battleground for several big players, but can anyone claim top spot?
Expectations for Peloton (NASDAQ: PTON) are running high as its Q1 earnings for fiscal 2021 will be reported on Thursday night. Having smashed its last few expectations, the luxury exercise bike-maker is likely to continue the trend.
While Peloton is on an upwards trajectory, there are some naysayers out there putting its recent success down to being a company in the right place at the right time, benefitting from coronavirus-induced social distancing. With this sentiment in mind, we look into the top competitors that Peloton will need to keep an eye on for the future, particularly if COVID-19 restrictions begin to lower.
1. Planet Fitness
Planet Fitness (NYSE: PLNT) is the more traditional brick-and-mortar type of competition to Peloton’s expanding dreams of a home fitness revolution. Providing affordable gym memberships to over 1,400 clubs across the U.S., Planet Fitness is a top hit for many looking to stay fit and healthy. Also, many popular gym companies over the past 9 months have had to accelerate plans to provide digital options for members.
Gym studios might not be the favored place for people to be during a pandemic, but that doesn’t mean that attitudes will stay this way. Gyms are a popular haunt of many who regard exercise as part of their regular routine as time away from both the house and the office. Once normality starts to properly kick back in, gyms will be a welcome respite for many young professionals who have spent months at home leading rather sedentary lives.
Forward estimates off the back of 2020’s revenue drop show potential growth of 66%. People are likely to flock back to the $10 a month gym membership which, in contrast to Peloton’s $39 per month for virtual classes (in addition to the price of Peloton’s equipment), seems like a bargain. Planet Fitness is a stock to keep an eye on as gyms become popular again.
Nike (NYSE: NKE) is a company that dominates the athleisure and fitness apparel sector. In February 2020, Nike posted $4.3 billion net income trailing twelve months (TTM); from that, it generated $3.4 billion in free cash flow which is a 79% conversion rate of its income to cash. This is highly impressive and shows the strength of Nike when it is on its A-game.
The pandemic has presented problems for Nike to navigate, such as falling sales and surplus inventory, which is up 15% year-over-year (YoY). However, Nike was already working in the digital world with its Nike Training Club app for personalized apparel recommendations and loyalty rewards. Nike Training Club will be Peloton’s biggest worry, which is now a free service and will continue to be so after COVID-19 has gone. Its digital presence has helped Nike navigate the pandemic as sales began to rise again last quarter, this is particularly apparent in China where sales are up 6%.
Nike’s free app could hurt Peloton if the home fitness revolution continues because, although primarily aimed at Nike fans to encourage sales, its access to free training schedules and classes given by popular athletes is a big draw. Additionally, people are not likely to give up the app if gyms open fully again as it has options for training courses in the gym as well as at home.
Lululemon with its recent acquisition of Mirror would be the easy option here, but due to its size and vast resources, I believe Apple represents a greater long-term threat.
Apple (NASDAQ: AAPL) has been upping its services game over the past few years, particularly in line with its Apple Watch series and a heightened focus on health. In September, the iPhone-maker announced a new service to the world, ‘Apple Fitness Plus’, a new step into the online workout space as it will provide new digital content each week including equipment-free workouts or workouts in the gym.
Much like the Nike option, Apple Fitness Plus is aimed at established Apple users as it requires both an iPhone and an Apple Watch. This makes Apple a competitor to Peloton, but only in part. However, that does not mean it is not a serious concern for the exercise bike company. With Apple’s subscription bundle ‘Apple One’, many of its users will be inclined to stay within the Apple ecosystem rather than pay $39 per month for a Peloton subscription, which incidentally is $10 more expensive than Apple’s premier option bundle.
Peloton should watch out here as Apple tends to excel in every business venture it puts its mind to and the Fitness Plus app will be no exception.
A MyWallSt subscription gives you access to over 100 market-beating stock picks and the research to back them up. Our analyst team post daily insights, subscriber-only podcasts and the headlines that move the market. Get your free trial now!
MyWallSt operates a full disclosure policy. MyWallSt staff currently holds long positions in companies mentioned above. Read our full disclosure policy here.