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The ad won’t kill Peloton, but this will.....

AzdakAzdak Posts: 8,281Member Member Posts: 8,281Member Member
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.

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  • CSARdiverCSARdiver Posts: 6,279Member Member Posts: 6,279Member Member
    Azdak wrote: »
    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.

  • AnnPT77AnnPT77 Posts: 14,228Member Member Posts: 14,228Member Member
    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:
  • MikePTYMikePTY Posts: 3,823Member, Premium Member Posts: 3,823Member, Premium Member
    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
  • StatChicBayesStatChicBayes Posts: 342Member, Premium Member Posts: 342Member, Premium Member
    And charge $20 for a live class!
  • AnnPT77AnnPT77 Posts: 14,228Member Member Posts: 14,228Member Member
    MikePTY wrote: »
    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

    Subscription now cut to $12.50, I believe. Not sure if that's in response to ad criticisms, a pre-planned pricing strategy, or a "special price".
  • stephanieadudleystephanieadudley Posts: 11Member, Premium Member Posts: 11Member, Premium Member
    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.
  • RelCanonicalRelCanonical Posts: 3,538Member Member Posts: 3,538Member Member
    Azdak 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.
  • AnnPT77AnnPT77 Posts: 14,228Member Member Posts: 14,228Member Member
    Azdak 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. :lol:
  • AzdakAzdak Posts: 8,281Member Member Posts: 8,281Member Member
    Azdak 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.

  • AzdakAzdak Posts: 8,281Member Member Posts: 8,281Member Member
    MikePTY wrote: »
    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.

  • kshama2001kshama2001 Posts: 21,611Member Member Posts: 21,611Member Member
    Azdak 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.
    edited December 2019
  • RelCanonicalRelCanonical Posts: 3,538Member Member Posts: 3,538Member Member
    kshama2001 wrote: »
    Azdak 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.
  • AnnPT77AnnPT77 Posts: 14,228Member Member Posts: 14,228Member Member
    kshama2001 wrote: »
    Azdak 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. :)
  • MotorsheenMotorsheen Posts: 16,660Member Member Posts: 16,660Member Member
    psychod787 wrote: »
    I honestly thought Peloton was actually a Swedish Metal Group...🤷‍♂️

    source.gif
  • Theoldguy1Theoldguy1 Posts: 857Member Member Posts: 857Member Member
    AnnPT77 wrote: »
    kshama2001 wrote: »
    Azdak 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.
  • nighthawk584nighthawk584 Posts: 1,765Member Member Posts: 1,765Member Member
    My 20 plus year old Spin Bike works just fine.
  • StatChicBayesStatChicBayes Posts: 342Member, Premium Member Posts: 342Member, Premium Member
    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)
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