In the video below, I will talk about what Peloton (PTON 1.46%) needs to do to become a multibagger in the future. Peloton is down 10% this week as fears of inflation rise. The stock also got downgraded by Wedbush to neutral on concerns that gym reopenings will boost competition. The 12-month price target was cut to $130 from $115.
Strong quarter
In Q3, the company generated total revenue of $1.262 billion, which represented 141% year-over-year growth, exceeding expectations across all geographies. It added a record 414,000 net-connected fitness subscriptions in the quarter, to 2.08 million, up 135% year over year. Net adds were helped by the low average net monthly connected fitness churn of 0.31%, the best the company has seen in six years. Peloton averaged 26 monthly workouts per connected fitness subscription versus 17.7 in the year-ago period, an increase of 47% year over year.
Next steps?
- Global expansion: Peloton bikes and treads are available only in the U.S., Canada, the U.K., Germany, and more recently Australia. This leaves a huge part of the world still open for penetration.
- More products: If you have a connected bike and a connected treadmill, that's it, you've reached the end of the equipment Peloton is offering. But in the future, the company could introduce a connected rowing machine, a connected elliptical, a connected cross trainer, connected weight machines, etc. How? In comes the Precor acquisition. Precor is one of the biggest manufacturers of commercial fitness equipment, and upgrading its devices with connected fitness software makes a lot of sense. Precor equipment can be found in hotels, spas, resorts, universities, and companies in 90 countries around the world.
- Apparel and nutrition: Peloton has recently partnered with Adidas in collaboration with Peloton instructors. Peloton apparel has been available for a while, but the company hasn't been emphasizing it. Apparel isn't that expensive to make and can be sold with high margins. It can also make customers feel as if they're part of the brand.
- PaaS (Peloton as a service): The Peloton platform can be used to advertise products, classes, and gyms or independent instructors.
More in the video below.
*Stock prices used were the closing prices of July 15, 2021. The video was published on July 16, 2021.
