Comparing Peloton Interactive (PTON -0.98%) to Netflix (NFLX -9.09%) may seem like a ridiculous exercise, figuratively speaking. Peloton is a high-end platform for interactive treadmill and stationary-bike workouts. Netflix is the streaming-video platform for the masses.
Nearly everyone you know probably has access to somebody's Netflix account. You probably know no more than two people with a Peloton -- and you probably don't even like them. Peloton is an active calorie-burning experience. Netflix is largely a passive calorie-consuming experience. I'm not the only one snacking while binge-viewing Netflix, right?
There's just no way that Peloton and Netflix can have much in common, but let's start with the actual platforms. Aren't they both ultimately about streaming engaging video on a screen? Peloton bikes and treadmills come with attached monitors where live or prerecorded workouts are streamed. You have to BYOS -- bring your own screen -- for the Netflix experience, but it's also naturally all about watching on-demand video.
You're probably still not convinced that Peloton could be the Netflix of anything, but I'm just getting started. Let's get ready to break a sweat.
Image source: Peloton Interactive.
N is for network effect
Netflix is all about the network effect. There are nearly 183 million paying Netflix subscribers worldwide who spent $5.4 billion to surf on the platform's growing ocean of content. This is an annual revenue run rate of $21.6 billion, and Netflix will spend the lion's share of that revenue on new content in 2020.
The network effect is a lucrative phenomenon for investors. It's a win-win. The more people sign up for Netflix, the more that the company can spend on content without necessarily having to raise its subscription prices (even though, to be fair, Netflix has pushed out four hikes since 2014). A platform feasting on the network effect becomes a better value for consumers as its popularity expands, and obviously, the company itself is benefiting from dividing its overhead by a larger base of customers.
Peloton is naturally a lot earlier in this phenomenon, but it's also growing faster than Netflix with a subscriber base willing to pay a lot more. Peloton had 886,100 connected-fitness subscribers at the end of March, up 94% over the past year. Folks are paying $39 a month for the signature service. Peloton can obviously justify springing for more live workouts for its slate, even if it's the same real-time experience to a spinning class of 10 people or 10,000 people.
Peloton topped a million connected-fitness subscribers in the current quarter, and that brings us to another selling point for the platform. If you're a top fitness personality, don't you want to be on a platform reaching the largest premium audience? We see this happen when studios try to sell their films and TV shows to Netflix first.
To the victor goes the spoils, and that's clearly what happened at Netflix. It expects to top 190 million premium subscribers worldwide by the end of this month, and there's a lot of information that it will be able to collect along the way. When it turns heads by signing a multi-picture deal with Adam Sandler, it knows its viewers' habits better than you do. There's a reason why Netflix always seems to have a hot show on its hands. Peloton isn't there at that scale just yet, but it's obviously the only one privy to information on which of its instructors are trending higher in popularity or what workout styles to emphasize in the future.
So, yes, I think it's fair to call Peloton the Netflix of fitness. The hardware isn't cheap, but Peloton's CEO has recently suggested that it will have a more price-accessible product on the market within a year or two. Netflix disrupted the video-rental business before taking aim at the cable-network giants. Peloton is giving gyms and spinning-class studios fits and is carving out a starring role in the booming home-fitness market.
Peloton and Netflix have been big winners this year. They're two of the handful of stocks where business is accelerating during the COVID-19 shutdown. They are high-flying growth stocks doing so many things right these days, and yes... Peloton is the Netflix of fitness.
