Peloton and the Amazon Effect on Fitness

Peloton and the Amazon Effect on Fitness

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Last Friday’s news that Amazon could be one of the suitors interested in buying Peloton caused that stock to jump 30 percent in after-hours trading. The collective pressures of the economy’s reopening, a leaked report last month that it was slashing production of its bikes and treadmills due to a lack of demand and the unfortunate series of PR issues arising from the Sex and the City sequel have battered investor confidence in Peloton’s management and the value of the brand over the last year.

At $8 billion, give or take, Peloton’s market cap today is roughly what it was when it went public in 2019. That makes it a relative bargain for Amazon, whose own stock market performance on the heels of its Q4 2021 earnings broke the record for largest single-day gain in market cap ($190 billion) last Friday.

Media reports focus on the possible synergies from Amazon’s healthcare ambitions and the access to Peloton’s user base, largely affluent consumers with a couple thousand bucks to drop on a connected bike or treadmill and the monthly connected fitness subscription fee to access on-demand and livestreamed classes.

I think it’s the other way around.

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According to financials that Peloton CEO John Foley released in late January, connected fitness subscribers stand at 2.77 million, up from 2.4 million the quarter before. He reports attrition at less than a percent (0.79 percent, to be precise).

Peloton doesn’t seem to have a user engagement problem. It has a scale and a diversity of revenue problem.

Those are two problems that a commerce engine like Amazon — with its own highly-engaged user base of 200 million Prime consumers — may be uniquely suited to fix.

Especially since most of those Peloton users are almost certainly already Prime members.

The Consumer’s Digital Shift to Fitness

The personal fitness industry and retail have a lot in common: connected devices, the cloud and payments have disrupted the status quo.

A couple of years ago, working out was largely done in a designated physical location — a gym or a fitness studio — and workouts were often synched with the consumer’s work/commuting routine.  Consumers might have had stationary bikes or treadmills or free weights at home, but going to the gym or a studio was how many consumers worked out, and they organized their schedules accordingly.

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For many, going to the gym was part working out, part social — and importantly, an opportunity to introduce variety into their daily, weekly or otherwise occasional fitness routines. Fifty bucks a month was what most people spent on those memberships.

It was also a routine that a lot of consumers found easy to break, even before COVID.

Sources that track gym memberships report that only 18 percent of gym members use the gym regularly (more than once a week). Gym membership churn rates average anywhere between 30 and 50 percent every year, depending on the source. Gyms build their business models, in part, on counting that most people won’t show up, so they don’t really need much space or help.

The pandemic forced a change in how consumers worked out when gyms and studios shut down in March of 2020. In the early days of the lockdowns, diehard fitness enthusiasts invested in bringing a connected fitness experience into their own homes to keep their workout routine intact.  Those whose workout routines were connected to their commuting routine pivoted to at-home alternatives, too. Many people whose daily commutes previously made it hard to find time to work out found that they could now fit in a workout and followed suit.

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Peloton was a big winner. The company sold its first bike in 2014, but saw demand soar in 2020 when waitlists for them extend into months in the early days of the pandemic.

Other connected fitness players also benefitted from those tailwinds. Peloton competitors — along with connected devices like Tonal, Mirror, Liteboxer and Hydrow — used the power of connected devices, software and instructors to attract users and keep them engaged. Apps with a variety of on-demand and livestreamed classes proliferated in Apple and Google’s app stores.

The pandemic pushed fitness into a digital shift. Consumers didn’t stop working out in March and April of 2020 — they just changed where they did it (at home) and how they did it (with connected devices and apps). They used both to establish a whole new fitness routine — one independent from being at a desk in an office at 8:30 AM or having to be home at 5:30 or 6 to feed the kids and do homework.

Last Friday’s news that Amazon could be one of the suitors interested in buying Peloton caused that stock to jump 30 percent in after-hours trading. The collective pressures of the economy’s reopening, a leaked report last month that it was slashing production of its bikes and treadmills due to a lack of demand and the unfortunate series…

Last Friday’s news that Amazon could be one of the suitors interested in buying Peloton caused that stock to jump 30 percent in after-hours trading. The collective pressures of the economy’s reopening, a leaked report last month that it was slashing production of its bikes and treadmills due to a lack of demand and the unfortunate series…

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