Can These 2 Fitness Companies Bounce Back From 2020?

Brick-and-mortar gyms struggled in 2020 due the COVID-19 pandemic, giving an outsize opportunity to at-home fitness equipment companies. In this clip from Motley Fool Live, recorded on June 15, Motley Fool bureau chief of consumer goods Jena Greene explains why Planet Fitness (PLNT 0.05%) may continue to be challenged in 2021 and beyond. 

However, when it comes to the in-person gym experience, Motley Fool bureau chief of healthcare and cannabis Corinne Cardina presents private company ClassPass as a strong bounce-back candidate going forward. And this is significant because the company is reportedly preparing to go public.

Jena Greene: I want to talk about Planet Fitness. I mentioned it a little bit before. It's a great segue away from Peloton into Planet Fitness because their business model is actually the complete opposite of what Peloton's is. They ultimately are banking on their gym goers not showing up. We talked about, Peloton really puts their users first. They want you to take more classes; they want you to show up on a regular basis. Planet Fitness' business model is much more we're hoping that you don't show up because it's expensive to run equipment and do maintenance, and to have packed gyms -- the more packed the gym is, the less likely you are to show up. They need to invest in more gyms. They put that entire business model on its head.

The stock is down about 2% year to date so it hasn't actually fared poorly, but I don't really think that's a reflection of its business model necessarily. A lot of reopening stocks, as they're called, have seen perhaps an artificial uptick because of market optimism. I'm not really buying this. Like I said before, 17% of U.S. gyms have been permanently shuttered. Planet Fitness' revenue was down about 16% to $1.1 million compared to the year-ago quarter, so they're not doing too hot. Franchisees actually own most locations, so there is a bit of revenue diversity there. It's much cheaper to run facilities that way for the overall parent company.

But I just am not crazy about it. In April, Planet Fitness actually added 800,000 members, but a lot of them are former members. They are people who canceled their subscription over the past year. They figured: "I'm going to stay at home, I'm not going working out, I'm just going to cancel my membership." They are re-upping now, but that doesn't scream crazy growth to me.

And that said, gym slowdown was an apparent factor pre-2020. Planet Fitness comps [comparable sales] averaged 20% in the 2010s. In 2019, so this is pre-coronavirus, I think its comps comped in somewhere at around 9%. There was a slowdown happening before the coronavirus. And in my opinion, you guys might not agree. I'm curious to get your thoughts on this, but in my opinion, I don't think that a lot of people were loving the whole communal gym factor prior to the pandemic and they're not going to especially be crazy about it post-pandemic.

Corinne Cardina: Great points, Jena. My stock that didn't do so well is a follow-on on that so I'll just keep it going so we can squeeze in everything in these last five minutes. The first thing I'll say -- I did say I would touch on adidas (ADDYY -0.28%). Adidas and Nike are easy comps. adidas is doing direct-to-consumer as well. They decided to sell off Reebok this year, so they acquired that a while back. It only made up a small portion of their revenue. They're streamlining. And then from a valuation standpoint, the price-to-earnings [ratio], if you look trailing 12 months, is about the same as Nike. The sizes are different -- adidas is much smaller. But I think Nike has more potential, especially digitally.

But I'm going to cheat a little bit and tell you all about ClassPass because this is a private company. There have been rumors of IPO [initial public offering], but I think this is an interesting follow-on to the Planet Fitness because ClassPass relies on in-person.

It's New York based, they have a great user interface, you can sign up for classes that have empty spaces among untold number of genres of exercise. So I used it for barre. I love that you could use it for yoga. You could use it to go to a gym, like they'll give you an hour in a gym like Planet Fitness. They try to fill empty spots. Everything from boutique gyms, boutique barre, and stuff like that, all the way to your generic gyms.

But what happened with ClassPass, this is an example of a company that might have looked anti-fragile until the pandemic happened because no one expected us to not want to do any kind of exercise out in the public. Maybe barre goes out of vogue or maybe yoga is not the cool thing. But when I looked at ClassPass, when it was valued at $1 billion before the pandemic, I just couldn't imagine a world where it doesn't continue to grow and grow and grow.

What happened when the pandemic began, I felt like they put their members first. They gave everyone the option to cancel their membership right away, no fees, no commitment to timeline-wise. So I canceled. I'm sure a lot of people canceled. They ended up furloughing a large number of their staff. That was the win-lose proposition there. Now they're having to try and attract all of their customers back. They're offering a free month of membership. But a lot of people have already developed new habits. Like I started running outside during the pandemic. So I don't know if I want to pay $50 for three barre classes a month. Other people have purchased new home equipment.

Last thing on this, there is a Bloomberg article this year that said they are considering merging with Mindbody, a fitness-technology company. The idea is that they would combine and then go public. I'm going to keep my eye on that. I probably will eventually go back to ClassPass. It's still private. But for people who do like to keep their eye on the IPO horizon, they didn't do so well in the pandemic, but I do think it has a really interesting business that should do well and should come back, bounce back over time.