This has been an excruciating year for Planet Fitness (PLNT -1.61%). The COVID-19 pandemic closed gyms around the world and, since these weren't deemed essential business, they've been slow to reopen. In the second quarter of 2020, it reported a net loss of $29 million on a paltry $40 million in revenue, both figures drastically down from pre-COVID levels.

Planet Fitness is limping, but Peloton (PTON -4.32%) is sprinting. In fact, the overall exercise-at-home space has surged, leading some investors to believe this trend will disrupt the "outdated" gym model. However, here's why Peloton won't kill Planet Fitness' business.

A young exercising couple wearing masks bump elbows to greet each other.

Image source: Getty Images.

The "new normal" for exercise

Planet Fitness owns and franchises over 2,000 gym locations, with its sights set on at least 2,000 more. It gyms are filled with a variety of exercise machines. To its members, it offers 24-hour access (in most cases) to their designated local gym for the low price of $10 per month, or a premium membership providing access to all gyms worldwide for $20 per month (prices vary). Planet Fitness couldn't be more different from Peloton. Its business is all about attracting the masses with a range of cheap exercise options.

Peloton is about paying a premium for one exercise at home. Of course, this is advantageous right now; because of the coronavirus, everyone is staying home a lot more anyway. Peloton seized the opportunity. In the third quarter alone, its most recent quarter, it signed up 174,000 new connected-fitness subscribers, bringing the total to 886,000.

It's not just Peloton profiting from this exercise-at-home trend. lululemon athletica owns MIRROR, an at-home fitness product on pace to generate $100 million in revenue in 2020. That's impressive considering it launched less than two years ago. Even tossed-aside Nautilus, maker of Bowflex, has seen a resurgence in demand. In its second quarter, net sales grew 94% year over year, its best quarter in decades.

Once Peloton gains a customer, it doesn't let go easily. Its current 12-month retention rate is 93%. And subscribers average 17.7 workouts per month. As long as users stay this engaged, the retention rate will likely stay high. 

Peloton is gaining and retaining customers. But this doesn't mean its clientele is done with gyms forever.

A man exercises with a Peloton Bike in a bedroom with wood floors.

Image source: Peloton.

Not so fast

Benji Jones is a senior reporter with Business Insider. To scientifically measure the Peloton Bike's effectiveness, he did a 45-minute exercise every day for two weeks. He met with a sports scientist before and after his experience. The verdict: Certain aspects of his fitness improved, but muscle mass was only gained in (drumroll, please) his legs.

The result isn't surprising, yet it's illustrative of a problem for Peloton users: It's a limited experience. Both the Peloton bike and treadmill are so expensive that most users finance these purchases. Including the ongoing $39 monthly subscription, Peloton customers could be paying $100 per month to perform just one exercise at home.

The high cost implies these people are serious about their fitness. Therefore, Peloton connected-fitness subscribers, unlike Jones in his two-week experiment, are probably doing a lot more than just one exercise. And indeed, Peloton's management already knows this. 

Peloton connected-fitness subscribers have access to Peloton Digital, the company's app filled with workout options. In its letter to shareholders in the third quarter of 2020, management said 60% of connected-fitness subscribers are also using Peloton Digital to supplement their workout routines with exercises beyond their purchased hardware. 

A rack of barbells are pictured in a mostly empty gym.

Image source: Getty Images.

Gym membership is still relevant

Peloton users don't want to be limited to one exercise. Taking this into consideration, it's plausible that people could be customers of both Peloton and Planet Fitness. After all, Planet Fitness is the best gym value in town. Considering the high cost of Peloton ownership, any additional investment in personal fitness would likely need to be at a bargain price point.

Planet Fitness' total membership is down to 14.8 million as of Q2. This is a 4% decline from peak membership reached in the previous quarter. Management said cancellations accelerated in states with a sharp increase in coronavirus cases. The implication is that users are happy to hold memberships as long as they have access to a gym and can be sure it's a sterile environment.

At completely different price points, Planet Fitness can attract a much bigger customer base than Peloton long term. And its diverse exercise options make it an attractive option even for Peloton users, not to mention users of other home-exercise devices. The coronavirus is hurting the business right now, and the financial strain worsens the longer it drags on. But Planet Fitness shareholders shouldn't fret about success by a growth stock like Peloton. Gym membership is still relevant.