Peloton established itself as one of the darlings of Wall Street this year as gyms shut down. We outline the bull and bear case for the business and break down is Peloton stock a good buy right now.
2020 was quite the year for Peloton. The business flourished as people were forced to rethink how they work, travel, and, most importantly, exercise. The pandemic crafted almost perfect conditions for Peloton to thrive as gyms shut and people shifted en masse to home workouts. However, 2021 paints a different picture as Wall Street’s eyes move to a grand reopening. The stock is down 30% for the year and will face some an uphill challenge to maintain the growth which saw it become one of the stocks of the pandemic. At these levels, we ask: should you buy Peloton stock?
The bull case for Peloton
Thanks to a seemingly sky-high price for an exercise bike and not helped by an infamous tone-deaf Christmas commercial, Peloton started its life as a public company with a lot of skepticism in investing circles. However, it has proved its naysayers wrong and the stock is up more than 300% since its IPO thanks to some astonishing numbers. Let’s look at why.
First of all, what many people view as the company’s main weakness, its hefty price, is actually a great strength. Sure, $2,000 for a bike that doesn’t actually go anywhere might sound steep, but compared to well-known alternatives such as SoulCycle, it is actually cheaper. In the U.S. a Peloton bike sells for $1,895 including delivery and set up, but has a $49, no interest, monthly payment plan. Add on the standard subscription of $39, and you’re looking at $88 per month. That may seem like a lot, but according to Peloton, the average subscriber does 21.1 workouts per month, which boils down to $4.17 per class. SoulCycle charges up to $35 per class. Also consider that the average cost of gym membership per month in the U.S. is $58, not including add-on costs such as travel and classes.
Another reason to be bullish on Peloton is its rapid subscriber growth. Connected fitness members grew 134% in the past year to 1.67 million, while paid Digital Subscriptions grew 472% to 625,000. Not only is its base growing at breakneck speed, but it’s also more engaged. The average monthly workout per connected fitness subscription last quarter was 21.1, up from 12.6 this time last year. All of this has led to some huge numbers, with Peloton bringing in a whopping $1.06 billion in revenue in its most recent quarter, up 128% year-over-year. Yes, the pandemic has conjured a perfect storm, but numbers like this just can’t be overlooked.
The bear case for Peloton
With the global economy on the verge of reopening, investor sentiment has shifted away from the ‘stay-at-home’ stocks which have been the darlings of Wall Street for so long. With gyms and spinning classes once again accessible to the masses, will Peloton’s rip-roaring growth be cut short? Personally, I think connected fitness is here to stay and Peloton is the pioneer of this industry, however, a slowdown in growth in 2021 seems inevitable for the company.
Another factor to consider before investing in Peloton is the increased competition it faces. Some big names have targeted connected fitness and will look to steal some of Peloton’s lunch. Lululemon’s acquisition of Mirror has established itself as a name in the space, while the launch of Apple Fitness+ as part of the Apple One service bundle will be sure to raise some eyebrows. It’s usually a sign that you’re doing something right when big names like this try to move in on your territory, and while they do not provide the same level of service – AKA Beyonce! – they will be sure to have Peloton on its toes.
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So, should I buy Peloton stock?
Despite its often-mocked image of being an upper-class stock for the privileged, Peloton makes a strong case for investors. Financing plans on hardware make it affordable, and its products have a very high resale value. All this combined with a competitive subscription price makes the product good value when spread over a few years.
It is also one of the few ‘pure plays’ out there, being solely concentrated on what it does — connected fitness. With the coronavirus likely to live on the public’s mind long after it has passed, at-home options could well be the future of exercise, and Peloton is beautifully positioned to benefit from this change in attitude. Investors should take this recent dip as a buying opportunity.
- Can Peloton instructors see you?
- Peloton instructors cannot see users’ heart rate or screen, and can only see output, cadence, and resistance.
- Can you watch Netflix on Peloton?
- Peloton prohibits users from modifying the bike to download other apps like Hulu or Netflix.
- Is Peloton profitable?
- Yes, in its most recent quarter Peloton posted a net profit of $63.6 million or $0.18 per share.
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MyWallSt operates a full disclosure policy. MyWallSt staff currently hold positions in companies mentioned above. Read our full disclosure policy here.