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The ad won’t kill Peloton, but this will.....
Azdak
Posts: 8,281 Member
in Debate Club
I decided to break away from the “Peloton ad” thread, since the 15 min clock already expired.
This article was published this morning and points out the serious flaws in the Peloton business model.
https://www.fool.com/investing/2019/12/10/the-biggest-problem-with-pelotons-bull-thesis.aspx
I would add also that, despite their claims they are creating a new reality, Peloton faces the same business challenges as every other health club and every other home fitness equipment manufacturer ever.
60% of the people who join a health club in January, will not be exercising by October. (40% will stop by April). Good intentions and inertia may keep them paying dues for a while, but they are at risk of cancelling every day.
Once a club has been open for a few years, they reach a state of equilibrium with membership. The number of new people who join each year is offset almost 1:1 by people leaving. The center where I worked before I retired has been open almost 20 years. They have around 2,400 members. They average 50-60 new members each month. The membership goal for this year was a net 150 new members. They are likely to be well short of that.
I think they will have some success. There is a population subset for which their products are ideal. But, right now, the stock price is not that of a niche product—the early investors are betting that PTON is going to be a game-changing, high-growth company. At the first sense of weakening (and I don’t think a lot of PTON investors really understand the fitness business), the stock will go off a cliff.
This article was published this morning and points out the serious flaws in the Peloton business model.
https://www.fool.com/investing/2019/12/10/the-biggest-problem-with-pelotons-bull-thesis.aspx
I would add also that, despite their claims they are creating a new reality, Peloton faces the same business challenges as every other health club and every other home fitness equipment manufacturer ever.
60% of the people who join a health club in January, will not be exercising by October. (40% will stop by April). Good intentions and inertia may keep them paying dues for a while, but they are at risk of cancelling every day.
Once a club has been open for a few years, they reach a state of equilibrium with membership. The number of new people who join each year is offset almost 1:1 by people leaving. The center where I worked before I retired has been open almost 20 years. They have around 2,400 members. They average 50-60 new members each month. The membership goal for this year was a net 150 new members. They are likely to be well short of that.
I think they will have some success. There is a population subset for which their products are ideal. But, right now, the stock price is not that of a niche product—the early investors are betting that PTON is going to be a game-changing, high-growth company. At the first sense of weakening (and I don’t think a lot of PTON investors really understand the fitness business), the stock will go off a cliff.
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I decided to break away from the “Peloton ad” thread, since the 15 min clock already expired.
This article was published this morning and points out the serious flaws in the Peloton business model.
https://www.fool.com/investing/2019/12/10/the-biggest-problem-with-pelotons-bull-thesis.aspx
I would add also that, despite their claims they are creating a new reality, Peloton faces the same business challenges as every other health club and every other home fitness equipment manufacturer ever.
60% of the people who join a health club in January, will not be exercising by October. (40% will stop by April). Good intentions and inertia may keep them paying dues for a while, but they are at risk of cancelling every day.
Once a club has been open for a few years, they reach a state of equilibrium with membership. The number of new people who join each year is offset almost 1:1 by people leaving. The center where I worked before I retired has been open almost 20 years. They have around 2,400 members. They average 50-60 new members each month. The membership goal for this year was a net 150 new members. They are likely to be well short of that.
I think they will have some success. There is a population subset for which their products are ideal. But, right now, the stock price is not that of a niche product—the early investors are betting that PTON is going to be a game-changing, high-growth company. At the first sense of weakening (and I don’t think a lot of PTON investors really understand the fitness business), the stock will go off a cliff.
I would agree. I'm a long term investor, but I did dabble in short term trading by picking up fitness firms around November when the seasonal price is predictably low, and selling in February/March when the shares are high.
It's a bit different with gyms as people like the image of belonging to a positive community, so these withstand negative economics a bit better. Something like a Peloton subscription is less resistant against this.
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Probable.
The emotion-triggered stock dip from the ad made me glance at it for short to medium growth potential, but the unaddressed structure/strategy problems are a turn-off. Also, from my emotional perspective, on the surface the CEO sounds like one of the poorly-focused self-aggrandizing types, maybe good for a start-up, but perhsps without essential management skills.
Should be interesting to watch. :drinker:3 -
It's pretty crazy to me that they sell a $2300 bike with a $40 a month digital subscription and they are still losing money2
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And charge $20 for a live class!
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StatChicBayes wrote: »And charge $20 for a live class!
I have a Peloton. Is that new? I rarely get on live classes so I haven't noticed that, but they were always included.1 -
I honestly thought Peloton was actually a Swedish Metal Group...🤷♂️7
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60% of the people who join a health club in January, will not be exercising by October. (40% will stop by April). Good intentions and inertia may keep them paying dues for a while, but they are at risk of cancelling every day.
That must be why I always hear horror stories about gyms not letting people cancel.3 -
RelCanonical wrote: »
60% of the people who join a health club in January, will not be exercising by October. (40% will stop by April). Good intentions and inertia may keep them paying dues for a while, but they are at risk of cancelling every day.
That must be why I always hear horror stories about gyms not letting people cancel.
I've suspected it's also a factor in the proliferation of low-monthly-fee gyms (like PF among others): Charge people a few bucks a month (less than a pizza, and some of the gyms have free pizza/donuts if you go the right day!); make it complicated/obscure how to cancel; and large numbers of people will keep paying for a long time, thinking they might want to go (and that they're doing a good thing by belonging to a gym), or just out of inertia.
Many won't show up, so the facility only needs to be sized/maintained for the more-or-less constant small number who do show up, be it temporarily or long term.
Not so much PF, but other local or chain gyms here with that model seem to go through changes of ownerships or shut down pretty frequently, too - maybe once all the cash cows are milked, or have moved on to the shiny new low-cost option down the block.
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RelCanonical wrote: »
60% of the people who join a health club in January, will not be exercising by October. (40% will stop by April). Good intentions and inertia may keep them paying dues for a while, but they are at risk of cancelling every day.
That must be why I always hear horror stories about gyms not letting people cancel.
The business model of a lot of low-fee fitness centers depends on having a large number of dues paying members on the books who never use the facility.
They get people to sign a 12, 24, or 36-month contract with relatively low dues and then rigidly enforce the payment terms.
People go along with it because it’s too much trouble to quit, or...they always think they are starting up again tomorrow. In this case, the road to hell really is paved with good intentions.
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It's pretty crazy to me that they sell a $2300 bike with a $40 a month digital subscription and they are still losing money
In order to achieve the high growth numbers needed to jazz up the stock price (so the insiders can all cash in), they have to pay a LOT to attract new members. The initial marketing is a huge cost. This cost was one of the reasons investors were so wary when the stock first issued earlier in the year. It had a mediocre launch.
But then they reported some strong sales numbers and that, along with expected strong holiday sales, boosted the price I believe 35-40%.
Then came the ad—that knocked it down about 10% but that was a tempest in a teapot. It was starting to recover, when another well-known analyst came out and said the stock was only worth $5. That caused another 7-8% dip.
The CEO of Peloton and his cohorts have tried to create a lot of hype about the product and the company. Since everything is still new, there are a lot of smoke and mirrors right now. The market is trying to determine the valuation based on a lot of intangibles, so you will continue to see these swings in stock price based on emotion. This is enhanced because the CEO has positioned Peloton as a “hot growth” stock and when that happens, investors expect 30%-40% or more growth per year. Any hiccups, even temporary, will cause it to tank, and any good news will result in a sharp rise.
Eventually, once there is more of a history of solid business numbers, the value will sort itself out.
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RelCanonical wrote: »
60% of the people who join a health club in January, will not be exercising by October. (40% will stop by April). Good intentions and inertia may keep them paying dues for a while, but they are at risk of cancelling every day.
That must be why I always hear horror stories about gyms not letting people cancel.
I've belonged to gyms in three different states and never had a hard time cancelling. Sure, it was never immediate (does not take effect until end of contract or the the next billing cycle), but never especially burdensome.0 -
kshama2001 wrote: »RelCanonical wrote: »
60% of the people who join a health club in January, will not be exercising by October. (40% will stop by April). Good intentions and inertia may keep them paying dues for a while, but they are at risk of cancelling every day.
That must be why I always hear horror stories about gyms not letting people cancel.
I've belonged to gyms in three different states and never had a hard time cancelling. Sure, it was never immediate (does not take effect until end of contract or the the next billing cycle), but never especially burdensome.
They're kind of like HOAs. Most of them are just fine but when they're bad, they're REALLY bad, lol.1 -
kshama2001 wrote: »RelCanonical wrote: »
60% of the people who join a health club in January, will not be exercising by October. (40% will stop by April). Good intentions and inertia may keep them paying dues for a while, but they are at risk of cancelling every day.
That must be why I always hear horror stories about gyms not letting people cancel.
I've belonged to gyms in three different states and never had a hard time cancelling. Sure, it was never immediate (does not take effect until end of contract or the the next billing cycle), but never especially burdensome.
Perhaps a distinction between gyms whose business model is "gym" vs. gyms whose business model is "membership-mill cash cow"?
My Y will let me put my membership on hold if I'm out of town for an extended period, and resume later without start-up charge; as well as cancel very simply.
Costs more than $5-10 a month, though. Coffee every day, member picnic or something once in a while, etc. . . . no routine pizza/donuts AFAIK. Has free classes for special groups (diabetics, cancer survivors, etc.), "scholarships" for low income. Business model = community organization.
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I decided to break away from the “Peloton ad” thread, since the 15 min clock already expired.
This article was published this morning and points out the serious flaws in the Peloton business model.
https://www.fool.com/investing/2019/12/10/the-biggest-problem-with-pelotons-bull-thesis.aspx
I would add also that, despite their claims they are creating a new reality, Peloton faces the same business challenges as every other health club and every other home fitness equipment manufacturer ever.
60% of the people who join a health club in January, will not be exercising by October. (40% will stop by April). Good intentions and inertia may keep them paying dues for a while, but they are at risk of cancelling every day.
Once a club has been open for a few years, they reach a state of equilibrium with membership. The number of new people who join each year is offset almost 1:1 by people leaving. The center where I worked before I retired has been open almost 20 years. They have around 2,400 members. They average 50-60 new members each month. The membership goal for this year was a net 150 new members. They are likely to be well short of that.
I think they will have some success. There is a population subset for which their products are ideal. But, right now, the stock price is not that of a niche product—the early investors are betting that PTON is going to be a game-changing, high-growth company. At the first sense of weakening (and I don’t think a lot of PTON investors really understand the fitness business), the stock will go off a cliff.
I read this as:
1. Short the stock
2. Look for a smokin' deal on a used Peloton bike6 -
kshama2001 wrote: »RelCanonical wrote: »
60% of the people who join a health club in January, will not be exercising by October. (40% will stop by April). Good intentions and inertia may keep them paying dues for a while, but they are at risk of cancelling every day.
That must be why I always hear horror stories about gyms not letting people cancel.
I've belonged to gyms in three different states and never had a hard time cancelling. Sure, it was never immediate (does not take effect until end of contract or the the next billing cycle), but never especially burdensome.
Perhaps a distinction between gyms whose business model is "gym" vs. gyms whose business model is "membership-mill cash cow"?
My Y will let me put my membership on hold if I'm out of town for an extended period, and resume later without start-up charge; as well as cancel very simply.
Costs more than $5-10 a month, though. Coffee every day, member picnic or something once in a while, etc. . . . no routine pizza/donuts AFAIK. Has free classes for special groups (diabetics, cancer survivors, etc.), "scholarships" for low income. Business model = community organization.
There is also no profit motive with the Y, IMO a huge factor.0 -
My 20 plus year old Spin Bike works just fine.1
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stephanieadudley wrote: »StatChicBayes wrote: »And charge $20 for a live class!
I have a Peloton. Is that new? I rarely get on live classes so I haven't noticed that, but they were always included.
This was for a live class in the NYC studio where they record the videos - went to one last week with Jess when I was in NYC. Happy with my gym memberships - spin classes on state of the art Schwin/Keiser bikes that they maintain and upgrade on a regular basis! (and plenty of times to choose)1 -
I cant decide if the 2,000$ cost of the bike will help of hurt them. It certainly prevents plenty of people from being able to afford it. It might help with membership retention since in addition to the "I'll start back up" mentality already mentioned you have the "well I already sunk xyz money into this, so I can't just give that up".
After all the hype calms down I can't see it really lasting long term. It is really expensive for most casual exercisers and lacks the social experience many casual exercises seek (lots of people who go to cycle classes enjoy seeing friends there). If you aren't looking for the social scene you can probably get the same thing out of most stationary bikes and a youtube workout video. For more serious cyclists I have a hard time seeing them sink the money into an at home bike. Speaking as a runner, most runners much prefer hitting to road or trails and running with friends. The treadmill is more of a last resort when the weather or timing is just horrible. I wouldn't spend 4,000 on my last resort option. I would think serious cyclists are more likely to put their money into their real bikes.5 -
Avid cyclists are more likely to go with https://zwift.com/
Mount your bike on a smart trainer. Set up your mat, laptop, fan and a big screen TV and you are in business.
You can upload your workouts to Strava as well.4legsRbetterthan2 wrote: »I cant decide if the 2,000$ cost of the bike will help of hurt them. It certainly prevents plenty of people from being able to afford it. It might help with membership retention since in addition to the "I'll start back up" mentality already mentioned you have the "well I already sunk xyz money into this, so I can't just give that up".
After all the hype calms down I can't see it really lasting long term. It is really expensive for most casual exercisers and lacks the social experience many casual exercises seek (lots of people who go to cycle classes enjoy seeing friends there). If you aren't looking for the social scene you can probably get the same thing out of most stationary bikes and a youtube workout video. For more serious cyclists I have a hard time seeing them sink the money into an at home bike. Speaking as a runner, most runners much prefer hitting to road or trails and running with friends. The treadmill is more of a last resort when the weather or timing is just horrible. I wouldn't spend 4,000 on my last resort option. I would think serious cyclists are more likely to put their money into their real bikes.
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Love my Peloton bike. Going on 2 years and still riding strong.4
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Love my Peloton bike. Going on 2 years and still riding strong.
I'm glad you like it. What, I think, spelled trouble for Peloton is when their CEO told the story that VCs (Venture Capital Investors) told him that they priced the bike 100% too low originally, when it wasn't selling. By doubling the price, the mystique was born. Sales took off. Problem is, it's still only worth 50% of what the cost is now and people have heard that story.6 -
MikePfirrman wrote: »Love my Peloton bike. Going on 2 years and still riding strong.
I'm glad you like it. What, I think, spelled trouble for Peloton is when their CEO told the story that VCs (Venture Capital Investors) told him that they priced the bike 100% too low originally, when it wasn't selling. By doubling the price, the mystique was born. Sales took off. Problem is, it's still only worth 50% of what the cost is now and people have heard that story.
This is a known human factor and how we chase aesthetics over reason. If a product is priced too low it loses the luster of being an "exclusive" product.
A friend owns a specialized audio company and started marketing small, high quality amplifiers at low prices and almost went out of business. He engaged a marketing company who had him increase the size of the units, add lights and a blower (both useless), and quadruple the price and he could not keep up with demand. It pays to know what your customer wants.
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4legsRbetterthan2 wrote: »For more serious cyclists I have a hard time seeing them sink the money into an at home bike. Speaking as a runner, most runners much prefer hitting to road or trails and running with friends. The treadmill is more of a last resort when the weather or timing is just horrible. I wouldn't spend 4,000 on my last resort option. I would think serious cyclists are more likely to put their money into their real bikes.
Considering [1] the popularity of Zwift, and [2] that (ETA: smart) direct drive trainers have come down to the $800 price point, I doubt they'll be seeing any cyclists buying these things. ... And there are plenty who will spend that money on a fat bike+studded tires before resorting to virtual cycling.1 -
The ad won't hurt Peloton. But, Ryan Reynolds definitely seized an opportunity when they made the gin ad. LOL!2
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4legsRbetterthan2 wrote: »I cant decide if the 2,000$ cost of the bike will help of hurt them. It certainly prevents plenty of people from being able to afford it. It might help with membership retention since in addition to the "I'll start back up" mentality already mentioned you have the "well I already sunk xyz money into this, so I can't just give that up".
After all the hype calms down I can't see it really lasting long term. It is really expensive for most casual exercisers and lacks the social experience many casual exercises seek (lots of people who go to cycle classes enjoy seeing friends there). If you aren't looking for the social scene you can probably get the same thing out of most stationary bikes and a youtube workout video. For more serious cyclists I have a hard time seeing them sink the money into an at home bike. Speaking as a runner, most runners much prefer hitting to road or trails and running with friends. The treadmill is more of a last resort when the weather or timing is just horrible. I wouldn't spend 4,000 on my last resort option. I would think serious cyclists are more likely to put their money into their real bikes.
I don't know any cyclists who own a Peleton. I know people with bikes that cost much more, and could afford one, but see zero value in a bike you can't ride (from one place to another). For about 1/3 the price you can get a very good trainer to use the bike you already have and that fits you like a give indoors. And then you can also use it outdoors, which is why you got started in the first place.
With the trainer option, if Zwift goes out of business there are competitors to turn to. What happens if Peleton goes out of business?3 -
That's me, but I have a stair stepper for our long, rainy winter.NorthCascades wrote: »I don't know any cyclists who own a Peleton. I know people with bikes that cost much more, and could afford one, but see zero value in a bike you can't ride (from one place to another)...
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Stories like this are why I loved marketing classes in college. It's fascinating what makes people respond.This is a known human factor and how we chase aesthetics over reason. If a product is priced too low it loses the luster of being an "exclusive" product.
A friend owns a specialized audio company and started marketing small, high quality amplifiers at low prices and almost went out of business. He engaged a marketing company who had him increase the size of the units, add lights and a blower (both useless), and quadruple the price and he could not keep up with demand. It pays to know what your customer wants.4 -
I have both a road bike and a Peloton and prefer the Peloton. There are about 3 months a year that I can actually ride outside and can't ride from one place to another anyways since I live in a rural area.4
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