Peloton Interactive (NASDAQ: PTON) was one of the biggest beneficiaries of lockdown measures put in place during the pandemic last year, with more people seeking ways to exercise at home. The momentum is still strong, demonstrated by revenue and connected-fitness subscriptions soaring 141% and 135%, respectively, in the third quarter.
Many investors are concerned that as authorities start to loosen restrictions and economies slowly open back up, demand for at-home fitness equipment will weaken. But based on a comment made by Nautilus (NYSE: NLS) CEO Jim Barr on the Peloton competitor’s latest earnings call, there’s no need to worry.
Let’s take a look.
Things are looking good
On a May 10 call with investors, Barr highlighted his confidence in the company’s (and the connected-fitness industry’s) outlook: “We still see that 25% of former gym-goers do not ever plan on going back to the gym.” This is a profound statement, and it should alleviate any investor fears not only for Nautilus shareholders, but for Peloton’s as well.
According to the International Health, Racquet, and Sportsclub Association (IHRSA), there were approximately 64 million gym memberships in the U.S. in 2019. If we assume that 16 million, or 25% of them, never plan on going back, that’s a huge influx of potential customers for Peloton to try to acquire.
Add this to the fact that in a 2019 survey of Peloton members, four out of five were not even in the market for home fitness equipment before purchasing one of the company’s products. This means that Peloton’s total addressable market is not only big, it’s growing. This is something investors should cheer about as we return to some level of normalcy.
Barr went on to comment about the popularity and permanence of a hybrid work situation, where many corporations’ employees will be able to work from home some days out of the week. “As a result, we believe a meaningful number of gym-goers will continue to work out at home on dates they work from home,” he said. This will further help to bolster demand for the at-home fitness market.
What’s this mean for investors?
This is good news for Peloton shareholders, especially now, when the business continues to battle supply chain issues while also dealing with the recall of its Tread and Tread+ products.
Management expects full-year fiscal 2021 revenue to reach $4 billion, with 2.275 million connected-fitness subscriptions. This is certainly a slowdown from the previous few quarters’ gains, but it shows that even during what has been the most difficult time in the company’s short public history, it’s still finding ways to grow meaningfully.
Last September, during an investor day presentation, Co-Founder and CEO John Foley boldly laid out his ambitions for Peloton to one day have 100 million subscribers and a Net Promoter Score (NPS) of 100. This means that 100 million users would have no negative views about their experience with Peloton’s products and services. That’s quite a grandiose target, but seeing how quickly consumer behavior has shifted over the past year, it’s definitely not out of the realm of possibilities over the very long term.
Peloton’s stock has taken a hit recently, down over 25% in 2021. The business has clearly fallen out of favor with investors due to the two issues mentioned above and the market’s focus on reopening stocks. But based on Barr’s comments, the outlook for the industry as a whole is still very positive. The consumer discretionary company should be just fine.
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