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Peloton came into being with an intent to provide an at-home fitness experience in 2012. The company made sure ‘fitness’ rightly fits into people’s daily lives.
In 2020, Peloton became a hot topic across the internet after receiving a pandemic lockdown boost. But why? Home workouts became part of the new norm. This got the demand for the brand’s bikes soaring. Consequently, millions of fans paid to stream its online workout classes.
Let’s take a look at the Google Trends data for the term “Peloton.”
How Popular Is Peloton?
The online searches for “Peloton” tripled since the end of February 2020. Its stock prices also gained 36% in the same period. However, there was a decline in the searches in the first quarters of 2021. Interestingly, the search peaked later in November 2021 when the stock prices declined. This had the industry discussing the company again.
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In this article, we walk you through Peloton’s phenomenal pandemic growth and what followed next.
- Steep Growth of Peloton During the Pandemic
- Peloton’s Post-Pandemic Situation
- Reactive Measures Taken By the Company So Far
- As of June 30, 2021, Peloton operated in 123 retail locations globally.
- Peloton generated total revenue of $936.9 million in 2021.
- The all-time high Peloton Interactive stock closing price was $167.42 in 2021.
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Pandemic-Fueled Growth For Peloton
Awareness about health issues climbed sky high with the pandemic around. It paved way for increased sales of fitness goods. This doubled the company’s production capacity.
As usual, seasonal trends played their fair share to influence sales. Now let’s take a closer look at the annual revenue to gain a better understanding.
In 2019, Peloton earned $714 million in revenue. In 2020, it doubled to $1.82 billion and then peaked at over $4 billion in 2021. The company’s revenue is from its Connected Fitness Products and Subscriptions.
Incidentally, Subscriptions make up two-thirds of the total revenue. The Subscription data will help you form a fuller picture of this.
In 2020, Connected Fitness subscription workouts grew 333% to over 76.8 million. Additionally, the Peloton Digital subscriptions grew 210% to over 316,800. The total members were then 4.4 million. When the fourth quarter ended, the 12-month retention rate was 92%.
As seen above in the graph, the total number of Peloton members grew to 5.9 million by the second quarter of 2021.
Peloton’s Connected Fitness subscribers have been significantly growing. The subscription revenue comes from a monthly $39.00 Connected Fitness subscription and a $12.99 Peloton Digital subscription.
While the brand’s demand (including hardware and subscriptions) skyrocketed, the company took that as the right time and opportunity to ramp up its resources. Taking a quick look at Peloton’s assets and liabilities will help you understand this better.
Assets And Liabilities
The total assets for the quarter ending September 30, 2021, were $4.415 billion, a 26.94% increase year over year. The total liabilities for the same quarter were $2.908 billion, a 73.43% increase year over year.
Supply chain disruptions because of the COVID-19 outbreak impacted the delivery time of Peloton products. In December 2020, the company announced the acquisition of Precor and closed the deal by April 2021 for $420 million in cash. This acquisition helped in setting up manufacturing units within the US. In this way, the company hoped to tackle the order-to-delivery window delays.
Overnight success can come with its own share of challenges. For Peloton, this success came with an imbalance of supply and demand.
Hitting The Reset Button
2021 somehow took a different turn for the at-home fitness company. People grew tired of working out from their bedrooms and kitchens. Owing to this, there was a drop in demand for Bikes and Treads.
And here’s the twist — the at-home fitness company had a different expectation. Peloton stated that it underestimated the effect of economies reopening on sales.
In hindsight, the Connected Fitness company further decided to increase its production to meet the demand. And now, supply was outweighing demand. It wasn’t just that — the cost of commodities and freight was on the rise globally.
Let’s dive deeper into the company’s challenges and its journey ahead.
Plummeting Stock Prices
The at-home fitness company went public in late 2019 for $29 a share. Peloton Interactive (PTON) has a dual-class stock structure and John Foley, former CEO of Peloton, handpicked the board. As you can see in the graph, the stock price dramatically rose from $17.70 in March to $77.80 in August 2020.
While the market price of many tech company stocks has fallen during the pandemic, interestingly, the trading price of Peloton stocks increased.
The shares closed as high as $167 on 13 January 2021. However, because of the ongoing demand-supply variations, the company’s stock has now lost more than 70% over the past three months.
Stock prices can always seem speculative. Let’s understand how Peloton’s revenue experienced a fall from a steep increase.
Rise And Fall Of Revenue
Peloton generated total revenue of $936.9 million, growing 54% year over year. However, the company has sustained low churn rates of Connected Fitness subscriptions. This was partially offset by the impact of Tread product recalls that led to a fall in the last quarter.
Connected Fitness segment revenue (including the contribution from Precor) was $655.3 million. This accounted for 70% of total revenue.
Now, let’s see how Peloton Digital subscriptions dropped in 2021.
Dip In Peloton Digital Subscriptions
There was a slight decrease in Peloton Digital subscriptions in the second quarter of 2021. The Connected Fitness brand reduced the prices of bikes and introduced discounts to the membership at the same time.
All this was signaling how the demand for the brand was short-lived. The company had to switch gears and hit the reset button couple of times in 2021.
According to the shareholder letter released on 8 February 2022, the company is forced to cut down its input costs by laying off 20% of the workforce. The company right-sized its production and lowered the sales expectations. Peloton’s market cap has plummeted from around $50 billion to around $8 billion. Shockingly, the co-founder decided to step down too.
Let’s see what strategic measures the company has been taking so far.
Today, customer expectations have evolved toward experience, personalization, sustainability, and convenience. Most direct-to-consumer businesses are forced to rethink their old business models to integrate both online and offline experiences for their customers.
For Peloton, this means creating a better urban brick-and-mortar store model to get into the game of omnichannel experience. Many of the existing retail showrooms are relatively new. Due to the pandemic, the company temporarily closed all the retail showrooms. Though it has reopened retail showrooms, it has been under new operating limitations, such as shorter operating hours, mask guidelines for employees and customers, and other constraints on their previous retail sales strategies.
The above chart shows the count of locations per state. Only 31 states have Peloton locations.
California has the highest number (15.5% of total locations) of Peloton stores. As of June 30, 2021, the company operated in 123 retail locations across the United States, Canada, the United Kingdom, and Germany.
In the United States, Peloton has its stores around major urban markets and suburbs as a part of its strategy. It essentially operates in areas where the target customers are based.
Peloton has adopted a hybrid pricing model where the customer pays for both the digital as well as the hardware. In the fourth quarter of 2021, the at-home fitness company announced to slash the Bike prices by 20%. They wanted to tap into the affordability factor. This meant reducing its original bike price by $400 to $1,495.
The company also announced discount pricing for Peloton Digital memberships in 2021. The strategy was to eventually convert these digital subscribers to full Peloton memberships. In 2022, the prices for the bikes are back up to their original price.
For the Peloton apparel category that forms a small chunk of the overall business, more than 83% of their apparel is priced below $64.3.
Promotional & Marketing Strategy
Peloton relies on a broad mix of marketing to attract its members. The company uses television and Over the top (OTT) services for advertising. Social media platforms, such as Facebook, Twitter, and Instagram, are also used as marketing tools. Here’s what the traffic to the company’s website from social media platforms looked like for 2020:
Most of the traffic to the Peloton website comes from Facebook. The at-home fitness company has a community of hundreds of Facebook groups and a popular Reddit forum. Word-of-mouth referral is also one of the most lucrative ways the brand drives new users.
In 2021, Peloton resorted to boosting its spending on sales and marketing at a 172% high.
Peloton relies on keeping its product range highly tech-driven. In 2022, the brand announced the release of a new Bluetooth heart rate monitor. On a more upbeat note, the company is diversifying to penetrate deeper into the fitness market.
This was marked by the launch of its private label, named Peloton Apparel, in September 2021. The brand made a smart move to partner with Beyonce to reach a diverse audience. Under the apparel category, Peloton offers a wider range of women’s clothing and caters to plus sizes. A collaboration with Adidas also features gender-neutral clothing. The accessories include bags, drinkware, hats, and jewelry.
The branded apparel revenue topped $100 million in 2021 — more than double its 2020 total!
Customer Experience And Content Generation
Peloton offers a diverse cast of instructors with magnetic personalities. They have been at the forefront of building a successful community online. Moreover, Peloton members exclusively enjoy a ‘scenic rides’ feature on the app. The interactive fitness brand can improvise this feature to provide an immersive VR experience to its users.
The company has been doing its best to improve and create the best customer experience. However, due to supply chain and service issues, customers still report delivery delays and last-minute cancelations.
Peloton might not be the only direct-to-consumer startup to consider slowing revenue this year. As discussed earlier, companies can no longer rely on old business models devised in the pre-pandemic world. Customer needs and spending habits will keep evolving. For many new direct-to-consumer companies, it’s not a question of if they will sell their products in more places beyond their own website, but when.
On that note, are you planning your entry into the fitness industry? Then you would definitely need to invest in strategic POI location data to be on par with your competitors. Get access to comprehensive and reliable strategic location datasets. Easily download Peloton store location datasets and more from the ScrapeHero Data Store.