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Proprietary Data Insights Financial Pros Top Leisure Products (or Consumer Discretionary) Searches This Month
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New Normal Same As The Old Normal? October 2020 – a delivery guy dropping a Peloton bike in posh Santa Monica, California. This was a key indicator of consumer life during the stay-at-home portion of the pandemic. This was to be part of our new normal. As we approach post-pandemic life, we must ask: Is Peloton (PTON) just a shit company or does it remain a gauge on our (almost) post-pandemic zeitgeist? Peloton’s Mixed Bag Consider some numbers from Peloton’s most recent quarterly report:
But here’s the kicker that can lead us to some preliminary conclusions: The average number of monthly workouts per subscriber plummeted 26.5%, from 21.1 to 15.5, between Q4/2020 and 2021. Amid these numbers, Peloton has managed to increase profitability on the subscription side of its business, thanks, in part, to growth and low churn. Overall, the company’s losing money, due largely to gaffs, such as the recall of its Tread product, but also increased delivery and supply chain costs. As the company enters into a restructuring plan under new CEO Barry McCarthy (former Netflix and Spotify CFO), it says it has enough cash to fund working capital and capital expenditures for at least another year. Is Peloton A Bargain? With the stock down roughly 73% over the last year, it might be tempting to take a speculative stab. However, it’s probably best to hold off for two big reasons. One, we need to see how Peloton’s recently-introduced subscription scheme of packaging hardware with its monthly fitness plan plays out. It lowers the cost of entry to a $60-to-$100 a month bundle, presently on a test basis in a handful of states. At this point, Peloton loses a ton of money and has to prove that internal and consumer-pointed restructuring will reverse fiscal course. Second, we need to know more about what the fitness new normal will look like for consumers. Is the new normal the same as the old normal? |
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Leisure |
Are You Back To The Gym Or Still Exercising At Home? |
Key Takeaways:
We were so fascinated by the data we showed you the other day on recurring monthly subscriptions, we wanted to dig a little deeper, playing off of the case of Peloton. On Monday, we argued Apple (AAPL) will benefit from an iPhone subscription plan. Apple helps make your life easier and has maintained its position as a consumer status symbol, even if it’s no longer aspirational. As we have shown, this hasn’t quite turned out to be the case for Peloton. Across the board, will we retreat to the old normal of setting and forgetting our monthly gym memberships? At this point, we simply don’t know. It’s easy to forget about something we don’t like doing, even if it’s part of an attractively-marketed ecosystem. Consider something mentioned in that West Monroe study on subscriptions: As Professor Scott Galloway of the NYU Stern School of Business writes, “the most accretive action taken by any business is to move from a transactional model to recurring revenue. This exploits one of the fundamental flaws of our species, the inability to register time. Time flies — it goes faster than our estimated consumption of a product during a given time period. This helps explain why only 18% of gym members go to the gym consistently.“
Here’s the problem with the present data on working out at home versus going to the gym – there isn’t much of it. Ahead of the New Year, it appeared people were ready to go back to the gym. Then Omicron hit. And would-be gym goers backed out on their resolutions for a reason they could justify. Once the masks come off and stay off, we should have a better idea. And we might be able to piece together the data, using Peloton once again, to make sense of one part of post-pandemic life. Minus fresh numbers, I can tell you that when going maskless became an option in Los Angeles, the yoga classes I attend filled up again – big time. Here’s what we do know in addition to my anecdote and the currently murky Peloton experience:
That last point might be the key. It jibes with my personal experience and the Peloton data of growing subs amid decreasing monthly workouts. If we have to come to a conclusion today (and we don’t), it might be that many people will adopt a hybrid approach – working out at home and taking targeted classes at yoga, cycling, kickboxing studios and so on. During the heart of the pandemic, we used stay-at-home stocks to assess popular sentiment. With the masks pretty much off, can we still do the same as investors using fitness behavior as a barometer? The Bottom Line: If you want to invest in the broad fitness space, direct cash to established players, such as Nike (NKE). With Nike, you also get expected ebbs and flows in the business. What you don’t get is the stuff that keeps you up at night – embarrassing mistakes, a seemingly constant state of uncertainty, and unclear consumer direction on where and how they’ll choose to exercise. You know the model. You see the profits. You get a nice and growing dividend. No matter where and now people choose to work out post-pandemic, they’ll buy the apparel, even if it’s to just look like they worked out while waiting in line at Starbucks. |
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