There's no doubt Peloton Interactive (PTON -1.26%) was the champion among exercise companies during 2020's prolonged COVID-19 lockdowns, with its share price exploding 220% by the end of fiscal 2020. These blazing gains were achieved in just four months, between COVID-19's arrival in March and the fiscal year's end on June 30.
However, now that pandemic panic is fading and the government has eased shutdown of the economy, Peloton's performance is stumbling heavily. Other companies, such as gym franchisor F45 Training Holdings (FXLV), appear to be flexing their muscles in post-lockdown 2021. F45, in fact, just made an acquisition that could help it win market share from Peloton. Here's a look at why its business model may be giving it an advantage over last year's big winner.
Peloton's empire may be crumbling
Following a first-qurter fiscal 2022 earnings report on Nov. 4 revealing weakening results and sharply reduced guidance, Peloton's share price plummeted. The company's stock fell from around $86 per share before the quarterly results were announced to around $51 by the following Monday, a more than 40% drop over the weekend.
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The source of the stock collapse isn't difficult to find. While revenue rose about 6% year over year, the quarter still resulted in a net loss. Both top- and bottom-line results were below the consensus expectations of Wall Street analysts. Probably more significantly, Peloton slashed its guidance for fiscal 2022. Its lowered its revenue forecast by 11.1% to 18.4% compared to its predictions just a quarter ago. It also expects earnings before interest, taxes, depreciation, and amortization (EBITDA) to register a loss 30.8% to 46.2% larger than anticipated, moving it farther from generating positive net income. A key strategy, lowering its regular Bike model's price, also resulted in a notable loss of revenue rather than kick-starting profitable sales as intended.
Peloton also froze hiring on Nov. 5, according to CNBC reporting, after it approximately doubled its number of employees during the year's first half. The move was apparently planned even before the stock market plunge, with CFO Jill Woodworth stating during the Q1 earnings conference call, "identified areas of savings include making significant adjustments to our hiring plans across the company, optimizing marketing spend and limiting showroom development." The hiring freeze is said to involve all departments.
Meanwhile, F45 Training is just getting warmed up
"It is clear that we underestimated the reopening impact on our company and the overall industry," Woodworth also remarked during Peloton's earnings call, but gym operator F45 Training is much better positioned to benefit from the trend. F45, a recent gym stock initial public offering backed by action movie actor Mark Wahlberg, is generating strong revenue increases year over year and is aggressively expanding its franchised gym network, claiming it has "white space" for 7,000 more gyms in the U.S. and 16,000 internationally.
Operating a business model combining the social interaction and higher motivation of in-person gym workouts with technological integration enabling clients to pick from 6,000 different exercises, F45 is a solid contender for winning the business of people returning to brick-and-mortar gyms. According to Jefferies research, Americans' in-person gym use had already rebounded to 83% of its pre-pandemic level by June.
Potentially adding to its momentum, F45 Training inked a deal on Nov. 8 to acquire Vive Active, an Australian enterprise focused on Pilates workouts, for an undisclosed sum of cash. While F45 describes Vive as "profitable" and "high-growth," the most important part of the buyout may be the Australian company's offering of "in-studio, at-home streaming and on-demand classes." Its "Vive Stream" -- a play on the word "livestream" -- streaming and on-demand online workout platform will be at F45's disposal once the acquisition closes, giving F45 the potential opportunity to go head-to-head against Peloton on its home turf of remote at-home workouts. F45 says it already has franchise partners lined up to launch Vive Active studios and other services in America.
While it's unknown exactly how F45 will develop Vive's operations in the U.S., using its streaming and on-demand at-home exercise platform to develop this side of its business would mesh well with current workout trends. NPD Group research indicates many fitness seekers now have a "hybrid" approach in which they mix visits to the physical gym with home workouts using internet services. CNBC reports Jefferies analyst Randy Konik, a specialist in retail and fitness, says customers looking for convenience now "realize they can work out at a gym three days a week, and then three or four days a week just do something at the house or in the basement."
Expanding its streaming and on-demand exercise offerings with Vive Stream while continuing to add physical locations may be an effective growth strategy for F45 Training under these circumstances. While Peloton remains reliant on just half the equation, F45 takes aim at both ends of the spectrum. F45's stock is still trading sideways, with a lot of volatility, since its launch, but investors interested in gym stocks may want to watch it for signs of a takeoff as it advances its growth strategy during the coming quarters.
