2 Sports Stocks That Could Challenge Nike’s Subscription Business

As more and more consumers transition from the gym to the home, these 2 sports stocks are beginning to challenge Nike’s subscription dominance.

Aug. 4, 2020

People’s movements have been restricted and a lot of their popular pastimes were not viable options due to restrictions. As a result of tens of millions being furloughed from work, countless people started training for something to do. Companies in the health and fitness space saw this trend as an opportunity.

Many are trying to compete with Nike’s (NYSE: NKE) exercise subscription services at a time when demand is greater than ever before, with subscription-based business models becoming the way forward.

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Nike has been offering its Nike Training Club (NTC) Premium workout streaming service for free to people in the U.S. since mid-April. It did something similar in China when the pandemic set in, resulting in a 30% increase in digital business through its various commerce apps in the country. However, it has stiff competition from other companies that have been hoovering up new subscribers for similar offerings.

1. Lululemon

Premium athleisure wear company Lululemon (NASDAQ: LULU) is looking to cash in on the fitness craze in any way possible. Lululemon announced back in June that it would acquire home fitness company Mirror in a deal worth $500 million.

With Mirror, proprietary hardware is used in tandem with responsive software that provides regular live classes, one-to-one personal training and on-demand workouts. Lululemon has a significant global customer base that is interested in fitness and is in a strong position to acquire a good chunk of the subscription market going forward thanks to this acquisition. Mirror can leverage the 500+ Lululemon stores without having to set up its own brick-and-mortar retail presence.

The company is optimistic that Mirror can start delivering results straight away, with Wedbush Securities analysts estimating that Mirror could generate $100m in 2020 and break even or become profitable next year. 

Lululemon puts a heavy emphasis on using fitness influencers for marketing products. This could present a great way to get Mirror’s subscription offering in front of a lot of relevant eyes. The strategy will work hand in hand with the release of the latest season’s fashion offering with the company’s extremely loyal customer base. While net sales at Lululemon fell by 17% in its recent quarter, online sales saw an increase of 70%.

Although Lululemon cannot rival Nike in terms of size and reach as of yet, it has a deeply engaged customer base that will only be more committed to the brand when they sign up with Mirror. The company certainly looks well-positioned to compete with Nike in this sector.

2. Peloton

As well as having a hardware offering through the likes of connected stationary bikes and treadmills, Peloton (NASDAQ: PTON) offers its exercise class subscription for as little as $13 per month. Peloton has been capitalizing on the pandemic, with revenue rising by 66% in the latest quarter but its net loss was $56 million. 

It tried to capture new customers by offering a 90-day free trial and it managed to bypass the 2.6 million subscriber mark in May. The company has been looking to strike major partnerships to further boost subscriber numbers, recently entering a deal to make its classes available through Roku (NASDAQ: ROKU), which has over 40 million subscribers. 

The company is also looking to create some cheaper hardware options that can act as an entry level for the higher subscription offering. Those with a connected treadmill or stationary bike for example will be paying a monthly subscription of $39 to get the whole range of different online fitness classes. 

Not requiring people to use Peloton hardware to avail of its subscription service makes sense and the company certainly has optimistic growth targets and strong subscriber numbers. However, it does not have as loyal of a customer base as Nike or Lululemon. While Peloton hopes to transition the free trial users into regularly paying subscribers, it usually pays to be a bit pessimistic when a newly public company is promising massive growth but is still churning out relatively significant net losses.

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