Peloton (NASDAQ: PTON), the U.S. based exercise and media company is a far cry compared to its modest beginnings on crowdfunding platform Kickstarter in 2013. Today it is $524.6 millions in revenue for Q1 2020. With its basic package starting from $2,245, will it continue its pace for much longer or is it about to press the brakes?
The company has doubled its subscription revenues for nine months ending March 31 and managed to go from $120.1 million in 2019 to $242.5 in 2020. Revenue growth from fitness products was almost identical: from $560.8 million in 2019 to $958.9 million in 2020.
Impressive growth came with much higher operational costs. Sales and Marketing increased from $246.1 to $392.8 million, while general administrative costs gone up from $152.4 million to $265.4.
The company’s core market is North America, with international markets comprising only a small, albeit growing, fraction of its revenue ($503.9 million vs $20.6 million).
Despite having high margin products and growing revenue, the company has still ended up in red in 2020. The net loss was $-160.7 million.
The high costs associated to sales and marketing are understandable. Peloton is growing fast its current and new salesforce are being rewarded accordingly, while marketing team is enabled to launch high impact campaigns.
It is unlikely that the company will see profitability with its current growth mode. Sales, marketing, and administrative costs are increasing almost line in line with revenue. This may not be a problem yet, however mid-long term, Peloton will have to address this. The company could achieve this in multiple ways: by offering additional services via its subscription services or adjusting spend on sales and marketing if Peloton becomes household name.
If the company will manage to sustain its revenue levels, which have not been affected by COVID-19, and also keep innovating across its product and services categories, we may see the trend to continue in the upcoming years. Peloton’s products and services fall under premium category and therefore are relatively safer during the economic downturn. However, there are risks too. Some aspects on how the company handles private information may require additional clarifications from the company.
Another potential problem, admitted by the company, is its production studios, of which 3 out 4 are based in New York. Lockdowns related to pandemic or government restrictions may impact the company’s ability to produce the content for its subscribers.
Peloton is expected to continue delivering impressive growth, however long-term investors should be cautious, nonetheless. Fitness industry is full of fads that get replaced with new shining products sooner than some people manage to shed some pounds off their weight. Pelotons success will depend not just on its sales team or R&D but also on its community and how its members will interact. If the company will maintain a dedicated community, it may be Apple of fitness world, however even slight loss of its track can send its customer to seek new products and services.
Rate this article