Peloton’s digital future: Four questions rising

Peloton’s second quarter results and outlook for the third quarter were strong, and the company’s affiliated fitness subscriptions show no signs of slowing. But questions arise about the future as one of the COVID-19 darlings faces a new normal.

Indeed, Peloton is a prime example of a digital company that connects the real world. Recall that Peloton increased its connected fitness subscription count by 135% to 1.67 million in the second quarter. Paid digital subscriptions grew 425% to 625,000. Peloton posted earnings of $ 63.6 million, or 18 cents per share, on revenue of $ 1.06 billion for the second quarter, up 128% year over year. For fiscal 2021, Peloton forecasts at least 2.275 million or more connected fitness subscriptions and revenue of $ 4.07 billion or more.


Here’s a look at the big questions Peloton has to face.

Will Peloton fix its supply chain issues? Peloton’s result was strong and the company found there was no demand for hiccups. However, production capacity is ahead of demand. The bottleneck is shipping from China, logistics costs, and timely delivery of equipment to customers.

Peloton said it will spend $ 100 million to cut delivery times to around 4 weeks. On a conference call, CFO Jill Woodworth said on earnings:

There is a shortage of containers. There has been a long period of time when container ships sit at sea. There is a backlog to unload these containers. The main purpose of this investment is to circumvent all of these issues so that we can keep our large stocks in stock for our third party 3PL partners. So that we can deliver this order as quickly as possible. At the same time, over time we will still be using standard ocean freight, which is our typical model. But we are certainly in our forecast that takes all of these new factors into account when planning when to hit this inventory.

Ultimately, is Peloton a content company? I can’t help but compare Peloton to SiriusXM. In the past, the satellite broadcaster had to take care of the supply chain, radios, partnerships and content. Today, SiriusXM has a car footprint, but honestly it’s more about the content and the app.

Now quickly forward to Peloton. The company is spending $ 100 million on supply chain workarounds, has bought Precor for stronger manufacturing in the US, and is solving some major hardware issues.

That said, I can buy the Peloton app, which is well done by the way, and use my own gear for $ 12.99 a month. Or I can pay for a connected live experience, hand out the dough for a tread or bike, and pay a $ 39 per month membership for the entire household.

In other words, the connected live experience has to be very good at $ 39 per month. I think $ 12.99 is a bargain and falls into the good enough category.

John Foley, CEO of Peloton, said the digital channel is a great lead generation machine. He said:

The conversion from digital members to digital subscribers to connected fitness subscribers is something that we pursue and care about. It is one of our theses that when we introduce our members to our great teachers and great music, as well as our great community and great content and software, in a very low friction of $ 12 a month, and they see what we bring and why The experiences on Peloton are different that at some point they will want a Peloton Bike or Peloton Tread. We absolutely see that. It continues to be one of our best lead gene channels, and it gets better as we get smarter with it.

What does the fitness world look like after COVID-19? Peloton had a massive boost from the COVID-19 pandemic. However, COVID-19 vaccines mean more people are venturing into the gym. The takeover of Precor by Peloton gives the company a high level of production power, but also serves as a hedge in the event that demand for its core services should decline.

Peloton President William Lynch said:

We’re researching consumer perceptions of home fitness, and we’re going back to the gym and so on. I don’t know if that’s what you’re getting at, but while we research and follow up on the consumer quarterly, we do bespoke research.

And what is clear is that home relocation is not a COVID-led phenomenon. It accelerated it. But we see, if at all, when we emerge to the new normal that the norms have not changed. There is a worldly shift in home fitness.

However, in terms of demand for Peloton products and connected fitness at home, we see continued momentum for the foreseeable future.

Can Peloton Use Commercial Fitness to Grow Its Base? Foley said of Precor:

Precor’s product portfolio and sales team will also accelerate our commercial business where we see a significant opportunity to grow Precor’s franchise while serving the peloton platform to an even larger number of fitness enthusiasts in channels such as hospitality, multi-unit residential buildings, corporate premises and Colleges as well as introduce universities.

As mentioned in our transaction announcement, we are expected to manufacture Peloton devices in the United States at Precor’s North Carolina facility by the end of this calendar year and complete the acquisition earlier this calendar year. Until it is successfully completed, we will continue to think about Precor in the next quarter.

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