The past five quarters as a publicly traded company have been great ones for Peloton (PTON +4.58%). The connected fitness company's initial public offering (IPO) debuted in September 2019 to great fanfare after years of high growth prior to going public. With the COVID-19 pandemic forcing many exercise enthusiasts to find safer alternatives to crowded fitness centers, Peloton's stock has surged even higher in the past nine months and has gained in price roughly 251% year to date.
Last week, management announced a partnership with singer Beyoncé that it hopes will enhance the musical experience for the users of the company's fitness products. That should be a treat for the users, but what does this do for Peloton?
Where Peloton is now
Peloton, which sells video-enabled exercise equipment and monthly subscriptions to live video exercise classes, has seen phenomenal growth over the past year, growth that was helped by the spreading pandemic.
| Metric | Q1 2021 | Q4 2020 | Q3 2020 | Q2 2020 | Q1 2020 |
|---|---|---|---|---|---|
| Membership growth | 137% | 113% | 94% | 96% | 103% |
| Revenue growth | 232% | 172% | 66% | 76% | 103% |
Data source: Peloton quarterly reports.
Revenue and membership skyrocketed in Peloton's fiscal 2021 first quarter (which ended Sept. 30, 2020) despite many lockdowns being lifted across the country. Fitness centers and gymnasiums have reopened at least partially in many cases, but all indications are that Peloton customers are still happy with their purchases. The 12-month retention rate for subscribers clocked in at 92% in the first quarter ended Sept. 30, a rate which has been typical since the company's public debut. Demand for additional sales has been so high lately that the company admits it's having trouble keeping up. With a four- to six-week shipping wait, Peloton has indicated it won't be offering any Black Friday promotions this year to further boost sales.
But are these numbers sustainable in a post-coronavirus world? That's where Beyoncé comes in.
Image source: Peloton.
Many ways to grow
Peloton management isn't waiting for demand to subside before figuring out what to do next. It already faces plenty of competition from home exercise equipment manufacturers like NordicTrack and from fitness video producers like Apple's (AAPL +0.04%) Fitness+. It also expects fitness centers to get back to full operation as hopes of an effective coronavirus vaccine continue to increase.
The company has said it plans to launch new equipment to stay ahead of the game. It recently introduced a second, premium exercise bike and is launching two new treadmill models (a regular and premium version). It also offers digital subscriptions for video classes without needing to purchase the accompanying equipment, which is gaining a fast-growing membership.
Peloton's new deal with Beyoncé will involve a collaboration on themed workouts. Beyoncé is the most requested music artist on the Peloton platform, and music is a strong component of the overall Peloton video experience.
While this partnership is unlikely by itself to be the company's next big growth driver, it's a strategic branding move to connect with current clients and attract similarly minded fitness-oriented millennials. "Peloton and I both believe that the power of music can help uplift, motivate and inspire those on their fitness journeys," Beyoncé, who is a Peloton member, said. Some are suggesting this is equivalent to Nike (NKE +1.57%) hiring NBA great Michael Jordan and other celebrity athletes as its spokespeople. Those collaborations have been an important component of Nike's success and that of other athletic apparel brands that incorporate celebrity endorsements and collaborations.
Peloton isn't done yet
So far, Peloton has proven itself against the naysayers. The company has gone from a one-bike brand to new products and services, and it's starting to move beyond that to try new initiatives. That's what makes companies like Amazon so successful. This is Peloton's first collaboration, but it probably won't be the last. And we can expect to see other ways the company will branch out to cement its premium and leading position, some of which may work out and some of which may fail.
Peloton stock has been good to investors over the past year, and they keep trading it up to a whopping 375 times 12-month trailing earnings. The company is making strategic moves to keep revenue flying, and it looks like this is just the beginning.
