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Buy Peloton for Now, Buy Planet Fitness for 6 Months From Now

By Rick Munarriz - May 7, 2020 at 9:13AM

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Two workout specialists appear to be pedaling in different directions right now, but they're both positioned to win later this year.

The good news is that we're not wasting away while we're stuck at home. Peloton Interactive (PTON 1.18%) posted blowout financial results after Wednesday's market close. Strong membership growth and record engagement levels make it clear that fitness seekers are making the most of their time at home. But what happens after the shelter-in-place phase of this pandemic passes?

Investors got a stark contrast to Peloton's performance a day earlier when Planet Fitness (PLNT 0.64%) fell well short of Wall Street's revenue and profit targets in its latest quarter. The discount gym operator posted the first top-line decline in its publicly traded history. All of its 2,039 discount gyms were closed in mid-March, so engagement is nonexistent and the current quarter is going to be as bad you probably think.

A Peloton user looks at skyscrapers out of her high-rise window during a stationary bike workout.

Image source: Peloton.

Rep rally

Peloton is living up to the hype as one of the few publicly traded companies with improving prospects during the pandemic. Revenue soared 66% to $524.6 million in its fiscal third quarter, well ahead of the 54% surge that analysts were targeting. 

There were 886,100 connected fitness subscribers at the end of March, a 94% surge over the past year. Churn has fallen to a four-year low, and Peloton is boosting its guidance. Once you make a four-figure investment in a Peloton treadmill or stationary bike, you tend to use it. The average connected fitness subscriber is completing 17.7 workouts a month, shattering the prior year's record of 13.9 sessions.

Despite having had all of its 97 showrooms closed since mid-March and a two-week pause in its live workout programming in mid-April, Peloton continues to gain momentum. The platform continues to be a popular choice for the growing number of people seeking a high-end in-home proxy for the traditional boutique gym experience. 

The brick-and-mortar gym experience is a fading memory for folks, and that brings us to Planet Fitness. The gym operator's revenue declined 15% to $127.2 million. Analysts were holding out for a 5% increase, but that was probably the handiwork of some Wall Street pros who were late to revise their forecasts lower to account for the new normal. All the gyms closed between March 17 and March 22. Earnings shrunk to roughly a third of what they had been a year earlier.

Some positive tidbits include that same-store sales actually rose 9.8% while the fitness centers were still open, stretching the chain's impressive streak of positive comps to 53 consecutive quarters. It closed out the quarter with a record 15.5 million members, and cancellations were kept largely in check after Planet Fitness revealed that it won't be charging its users during the shutdown. 

The new quarter will be brutal for Planet Fitness, and the chain is just the latest to suspend its guidance as a result of COVID-19 uncertainties. It may seem like a rough report, but the stock actually closed higher on Wednesday despite initially opening lower. 

Peloton has lived up to the hype. Planet Fitness may be heading into a funk, but it should be the first gym operator to bounce back when the pandemic challenge passes. The appeal of Planet Fitness as a workout solution for the masses has always been growing. We're talking about more than 13 years of steady growth. The value proposition of paying as little as $10 for a wide array of workout gear in a judgment-free zone clicks.  

A lot of Peloton-less people are probably going to put on some extra weight during the COVID-19 crisis. They're going to want to get back into a regular fitness routine, and with the economy also likely to be on shaky ground, this seems like fertile ground for Planet Fitness as a discounter to gobble up some more market share. 

Rick Munarriz owns shares of Peloton Interactive. The Motley Fool owns shares of and recommends Peloton Interactive and Planet Fitness. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Planet Fitness, Inc. Stock Quote
Planet Fitness, Inc.
PLNT
$78.75 (0.64%) $0.50
Peloton Interactive, Inc. Stock Quote
Peloton Interactive, Inc.
PTON
$13.69 (1.18%) $0.16

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