Without a doubt, Peloton Interactive (PTON -5.48%) was a big winner in 2020. Investors are divided, however, on where the stock is headed in 2021 and beyond. In this video from Motley Fool Live, recorded on June 15, Motley Fool contributor Jon Quast talks with Consumer Goods Bureau Chief Jena Greene about two statistics that suggest Peloton is more than just a pandemic play.
Many people think that Peloton's stationary bikes and treadmills will eventually be sitting around gathering dust. However, you might be surprised by how much this company's user base has grown over the past four years. Furthermore, it's hard for these machines to collect dust when they're being used almost every day.
Jon Quast: Yeah Peloton. There's another stock that has done very well over the past 16 months or so. If you go back to the beginning of 2020, this stock is up 289% against the S&P 500's 32%, so beating the market by 250%.
This personally, for me, was not a company that I was familiar with before the pandemic. It's not something that I heard about and I think that just going along with this bigger trend that we're talking about -- this at-home fitness with the gyms closed -- that really Peloton was thrust into the limelight, into the center stage. We saw an incredible uptick in sales and engagement among the Peloton base.
Peloton's fiscal quarters are a little bit wonky. The most recent quarter was the fiscal third quarter of 2021, but that's ending in March here so it covers the whole, from the beginning of the pandemic until now. Their trailing 12-month revenue is up 156% year over year, so more than doubling. And what's tempting for me, or for a lot of people I think, is to view this as simply a pandemic boost to the business. It's a temporary tailwind that's going to peter out in coming months as more vaccinations get out there, as gym's reopen.
What's astonishing to me about Peloton is that this is actually pretty much business as usual for them. They've doubled revenue in every year since they have been a company. And they are forecasting that their revenue going forward for a year is going to double again.
If you go back to the third quarter of 2018, so just rewind three years, they were at 218,000 subscribers -- 218,000. As of this third quarter, their most recent quarter, up over two million. So they've roughly 10X their subscriber base in three years. To me, that's just an incredible testament to the strength of their brand that extends beyond just the pandemic boost that they got.
What we've also seen is an increase in engagement with Peloton users with their connected-fitness devices. Whether that's a stationary bike or a treadmill, three-years ago, the third-quarter 2018, averaging 9.6 workouts per month. So if you were a Peloton user, on average, almost 10 times a month you were using it. As of the third quarter of this year, the fiscal third quarter of this year, 26 workouts per months on average. Almost tripled the amount of usage that these machines are getting.
The reason this stat is important to me and why I've actually recently become a Peloton shareholder. I only bought it this year. I didn't buy it before the pandemic because of the argument that fitness trends tend to be just flash in the pans. Growing up, my parents had a lot of exercise equipment that sat in the garage not getting used. It was the latest fad and it collected dust after that -- they were coat hangers.
Pelotons are not coat hangers. If you're using it 26 times a month, you don't have time to hang your clothes on them. That just not how it is. Even 9.6 workouts a month, figure, that's 2-3 times a week that people are
using it. That is still a very well used machine. To me, it just speaks to the strength of that -- that they've built a
better at-home fitness experience.
And yes, it's going to be replicated. We see Nautilus with their Bowflex and things like that, getting into the more connected-fitness space. I think that we are going to see that, we're going to see more companies emulating what Peloton has created. But to me, it just speaks to the testament of the business model that it is working.
Jena Greene: Speaking of the business model, Quast. Correct me if I'm wrong, but I have read that subscription is actually Peloton's most lucrative revenue source. It's not coming from the hardware. It's mostly people who are reupping that $39, $40 monthly subscription and taking those connected classes, that's where they're making the bulk of their money.
Quast: That's absolutely right, yeah. The margins on the subscription business are better than the hardware and they just keep getting better. As their subscriber base grows and as they maintain that, for me, it's pricey $40 a month or whatever it is. That just they leverage it because they build the content once, they create the content once but they sell at multiple times and so I don't have the number in front of me, but I did note in one of my recent Peloton articles said yeah, the gross margin for the subscriptions is expanding over time.
Greene: Yeah, it is and they've been smart, at least from my consumer perspective. I actually don't own Peloton stock, but from a consumer's perspective, they've been brilliant with their marketing of not just workouts, but personalities. You find a favorite instructor or they do encore performances whereas some of their most popular classes get played as live classes again and it's almost the Hollywoodization of fitness personalities which creates a really sticky revenue model, if you ask me.