It's not often that you witness a brand new trend emerge in the way people carry out their routines, but the pandemic has certainly brought about many such changes in a short period. Widespread lockdowns and the shift to telecommuting has resulted in a sea change in the way people work, interact, and even exercise. Peloton (PTON 0.87%) has latched on to these new trends to offer investors a compelling proposition -- staying safe from the pandemic while being able to work out in the comfort of your own home.
The exercise bike and treadmill company has seen a surge in demand for home fitness equipment since the crisis broke out early last year. Not only are more people buying exercise equipment for home use, but these same people are also rushing to sign up for connected fitness subscriptions to work out in tandem with a trainer.
Peloton has been on the lips of many an investor for the past year. With expansion plans in place and also an acquisition to boot, it's not hard to see why.
Image source: Getty images.
Strong financial and operating metrics
Peloton's latest numbers attest to its strong growth in the past year. Connected fitness subscriptions for the second quarter of the fiscal year 2021 surged 134% year over year to 1.67 million, and the company's member base more than doubled during this period from two million to 4.4 million. Total workouts quadrupled from 24.3 million in the second quarter of the fiscal year 2020 to 98.1 million in the company's latest quarter. This sharp increase is a testament to the company being able to attract more members onto its platform.
Peloton's financial numbers have also shown a vast improvement in tandem with the rise in workouts and fitness subscriptions. Total revenue for the six months ended Dec 31, 2020, nearly tripled year over year to $1.8 billion. After deducting expenses, the company reported an operating income of $127.7 million, a turnaround from the $112.4 million net loss in the prior period.
Penetrating the commercial fitness market
In a move to expand its sources of revenue, Peloton announced an agreement to acquire Precor, a global commercial fitness equipment provider, for $420 million last December. This transaction is noteworthy as it not only adds around 625,000 square feet of additional manufacturing in the US but also opens up the business to business (B2B) market for the company.
Peloton was facing a deluge of orders as demand surged for its equipment, and in its previous quarter, the company admitted to some of its members facing significant delays in receiving the products they ordered. The acquisition is timely in helping to increase Peloton's manufacturing capacity to deal with the backlog of orders received. The company's entry into the commercial market introduces an additional revenue stream that should be less volatile than its current business-to-consumer (B2C) core business.
Steady expansion into other regions
Peloton announced last month that it will be launching its products in Australia, and this will be the company's first foray into the Asia Pacific region. The original Peloton Bike and app will be released along with thousands of workouts accompanied by music from favourite artists. Physical retail showrooms will be built in key Australian cities such as Sydney and Melbourne, in time for the official launch of the brand in the second half of 2021.
With this announcement, Peloton is going down under to further expand its membership base outside its current North American core. It remains to be seen if the company will target other countries within Asia as future plans may hinge on the success of its Australian launch.
Catalysts for growth still in place
Peloton should see continued success in its push for market leadership in the home fitness space as it scales up its offerings and enters new markets. The pandemic acted as a catalyst that accelerated the demand for home fitness products, boosting the company's business and making it a household name.
Even after the crisis has passed, businesses will still practice telecommuting to some extent to provide flexibility to their employees and also to reduce their overall rental cost by cutting down their physical footprint. Exercising at home seems here to stay and will form a structural trend that can only grow stronger as large swaths of the human population move online in various parts of the world.
Peloton is probably just getting started. The total addressable market for the industry remains significant and the company is well-positioned to tap into it for continued long-term growth.
