Shares of Peloton Interactive (NASDAQ:PTON) have been quite volatile since its IPO in September. Making it worse is the recent market sell-off over concerns about the COVID-19 outbreak. 

However, Peloton's business has experienced tremendous momentum in recent quarters. It's a business that can survive tough times in the economy, with about $1.5 billion in cash and short-term investments on the balance sheet and no debt.

In the last quarter, Peloton saw its subscriber count soar 96% year over year. We'll look at three signs that Peloton is building a strong moat, which should keep its subscribers (and revenue) marching higher.

A woman wearing earbuds while running.

Image source: Peloton Interactive.

1. Investing in logistics footprint

Customers demand speed in today's economy. Amazon Prime popularized two-day shipping, and that has set the standard for logistics for any company wanting to upgrade its online game.

Speed is particularly important when ordering a $2,245 exercise bike, especially during the holidays when it is typical for high demand to cause delays of several weeks for orders to ship. That's plenty of time for customers to lose the fire that fueled the impulse to order.

Peloton has spent the past two years investing in its supply chain and expanding its logistics footprint. This allowed Peloton to cut its order-to-delivery time in half over the holidays, leading to a blowout quarter

During the last call, President William Lynch said this sets up Peloton "really well in the future." It has 96 showrooms globally to give customers a hands-on experience with the product, and the company now has 31 warehouses across the U.S., which "brings bikes and treadmills closer to customers," Lynch said. 

2. Building a community around software features

The network effect is a powerful tool to build a durable moat. Peloton is trying to release new features to its workout apps that create a tighter sense of community among its connected fitness subscribers. By releasing social features, particularly centered around gamification with the workouts, Peloton believes it can strengthen its moat. 

During the last conference call, CEO John Foley said, "We do have a couple of really sexy social features in the queue for the connected fitness offering and for digital." Although it's unclear what these features will be, Foley said building gamification into their software is a "high priority" for the company, and these are features that members want. 

"We have hundreds of the best Python and iOS and Android engineers in New York City writing code and working with some great product lines," Foley said. He also stated these new features "are going to help protect our moat from a network effect perspective." 

3. Peloton's fastest growing business is non-cycling content

Peloton has built its brand around spin cycling, although it has shown an interest in expanding into other workout options with a line of treadmills. But it's a great sign for the brand that over 30% of the classes taken by members in the last quarter were non-cycling activities. This contributed to strong member engagement and lower churn for its connected fitness subscribers, which is already incredibly low at 0.74% for the quarter. This means very few customers are choosing to return their new exercise bikes after purchase. 

The interest in non-cycling content is important because, as Lynch said, "We know that engagement is a leading indicator for retention." Specifically, Peloton is seeing a "massive engagement increase" coming from activities like meditation, and that is opening the door for additional growth opportunities to expand to other fitness activities and increase subscriptions to Peloton's digital app. 

Recently, Peloton launched an app on Apple TV and Amazon Fire TV. Over 75% of the workouts taken on the Fire TV app in the weeks following the launch were in strength, stretching, yoga, and meditation. Peloton also released an app for Apple Watch that provides users with additional workout metrics. 

Lynch said all of this should continue to drive high engagement and hinted that Peloton is still at the tip of the iceberg of its growth potential. "When we say we're just scratching the surface both in terms of content offered and interfaces and experiences, we mean that," he said. 

As Peloton invests in logistics, shortens delivery time, and delivers more content across different mobile platforms, it is piecing together a very sticky fitness service. On a trailing-12-month basis, 93% of customers are keeping their subscription, which is a great sign for this growing brand.