Peloton: Carving a niche in the virtual fitness space

Peloton Interactive (NASDAQ: PTON) has been through a roller-coaster ride since March. After hitting a record low earlier this year, the stock gained over 300% and reached its all-time high in July.

However, August is seeing a different story. Peloton has already slipped 11% since the first week of this month. Over the past year, Peloton has been a good-performer. Since its IPO in September 2019, the stock has more than doubled till date.

Founded in 2012, the company sells fitness equipment including treadmills and stationary bikes. It also targets customers through its yoga and cardio offerings.  It has been consistently working towards making the business more relevant in the COVID-19 times.

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Peloton appeals to fitness-freaks in two main ways. Firstly, it offers a workout experience closest to that of a gym, that too from the comfort of home. The virtual sessions offer a feeling of close-knit community that motivates the users.

Secondly, it is time-saving and convenient. In today’s fast-paced environment, no one wants a workout that is time-consuming. Not to mention, the semi-lockdown situation has just given the right boost to Peloton.

Both the aforementioned factors enabled the stock to garner $420.2 million in equipment sales and $98.2 million in subscription revenue in the fiscal third-quarter.

Proactive measures to be on top-of-the game

As the current situation has confined people to their homes, and they cannot hit the gyms or fitness centers, Peloton has done something offbeat.  Earlier in July, it made its app available for streaming on Roku (NASDAQ: ROKU). This means customers could now access numerous instructor-led workout sessions that they can perform while staying indoors.

The company, in its 3Q results, also stated that it has witnessed a rise in demand for treadmills and bikes, since March. In an interview to Barrons in July, CFO Jill Woodworth indicated a possible product in the pipeline, which would include a cheaper treadmill with a connected-fitness rowing machine.

Woodworth also stated that it was a mega-size treadmill, which was larger than stationary bikes. The CFO further emphasized that the company now prioritizes treadmills across various price points.

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Markets unperturbed even as fear of competition looms

In another crucial development last week, Peloton gave up 4% in the pre-market session amid Bloomberg news that Apple (NASDAQ:AAPL) might launch a subscription-based fitness streaming project that would offer online classes on iPhone, iPad and Apple TV.

The stock later rebounded and closed 2% higher. Bloomberg reported that the fitness project would be a part of the iPhone maker’s “Apple One” subscription bundle.

The at-home fitness classes are the latest rage amid the pandemic situation and every player wants a slice of the pie. Currently Peloton and Nike (NYSE:NKE) offer online fitness classes at a price lower than gym memberships.

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Analysts believe that investor confidence in Peloton will remain unfazed and the stock’s quick rebound indicates this.

Managing Director of Wedbush, James Hardiman, stated that Peloton will maintain its lead in the virtual space because its “marriage of hardware and software” has been revolutionary.

Addressing drawbacks to stay competitive

Peloton also seems to be aware of another hurdle it faces and that is the pricing. The market for high-end fitness equipment does exist but it isn’t that wide. With growing demand amid the pandemic, the company has to adjust its pricing. Perhaps the indication of a new treadmill in the pipeline is an answer to this.

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