Peloton (PTON): The Apple and Netflix of the Fitness Industry

21 Sep 2020

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What is Peloton Interactive (PTON)?
- Peloton is a home fitness company that offers fitness products such as an indoor cycle, and a treadmill, as well as live workout content
- Peloton is similar to Apple (AAPL) in that it promotes the establishment of a hardware-based ecosystem
- It’s also similar to Netflix (NFLX) in that it offers various fitness content in subscription form

Financials
- They initially anticipated $1.72 billion in revenue for 2020, which has been modified to $1.74 billion due to their explosive growth
- This means that PTON demonstrates a 89% year-over-year growth in revenue
- Out of their total revenue, 79% consists of sales of connected fitness products, and 20% from their subscription service
- PTON is one of the few stocks that has benefited from the pandemic.
- With an increasing number of people staying indoors, wanting to exercise, demand for Peloton’s products and services skyrocketed.
- Due to the Coronavirus (COVID-19), they have managed to be profitable for the fourth quarter with an Earnings per Share (EPS) at 27 cents.
- While they are not extremely profitable yet, as PTON is a growth stock, the fact that they have $500 million in cash proves that they will be financially stable for the short term.

Business Analysis
- The fitness machines sold by Peloton are not normal indoor cycles and treadmills with screens attached
- These fitness machines, which cost $2,245 and $4,295, apply cutting-edge technology that allow users to meticulously control the angle and resistance.
- Moreover, these products provide accurate data on the user’s athletic performance.
- The hardware provided by Peloton Interactive are optimized for the contents they provide.
- PTON’s instructors are 30 of the most famous fitness influencers on social media.
- As such, they could expand their streams of revenue to paid advertisements, and ecommerce opportunities, diversifying the business.
- They offer two subscription plans:
- A ‘Connected Fitness’ plan based on the hardware they offer
- And a digital membership that is offered separately
- Connected Fitness allows users to participate in live cycling sessions, and receive immediate feedback from the instructor
- The number of users subscribing to Connected Fitness is skyrocketing, with a 94% increase in users compared to that of the last quarter
- The number of subscribers for Connected Fitness surpassed 1 million in 2020 May
- The digital membership subscription does not require a Peloton hardware, and offers various types of content besides running and cycling, such as yoga, meditation, and boot camps.
- Their customer churn rate remains extremely low at 0.65% every quarter, while the number of users continue to grow every quarter

Technical Analysis
- We can see that prices have been in a phase of accumulation for a long time since later 2019
- As prices traded within a descending parallel channel, we saw a sharp breakdown caused by the market drop, which was triggered by the Corona Virus (COVID-19)
- Unlike other companies that were severely affected by the virus, the pandemic was an opportunity for Peloton to grow.
- As a result, we saw prices break through the $40 resistance zone, and rally in a parabolic trend
- Along the way, it has undergone a phase of re-accumulation, before reaching its all-time high at $91.17
- Currently, we have seen prices cool off, bouncing at $79.34 where the 0.236 Fibonacci support and parallel channel trend line support converge
- The 20 Simple Moving Average (SMA) is also a good indicator of PTON's bullish trend, as well as strong support.
- Based on fundamentals, unless we see a corrective confirmation below $80, we could anticipate new all-time highs for PTON.

Conclusion
Peloton is on its way to completing a hierarchical process of 'hardware-software-content-community' funneling users into their ecosystem. This ecosystem that Peloton is designing has been attempted by many, but successfully done by only a few. With the development of each elements and growth as a whole, we could expect a huge augmentation in the barrier to entry.

One thing to note about growth stocks such as PTON is that the essence of the business is rooted on tech. To say Peloton Interactive (PTON) is another fitness-related company like Fitbit (FIT) is to compare Amazon (AMZN) to bookstores and Tesla Motors (TSLA) to automotive companies.