Is This Fitness IPO Worth a Look?

In-home fitness equipment has been selling tremendously well over the past year and a half or so, and iFit, maker of NordicTrack machines as well as fitness software, is set to launch its initial public offering in the near future. In this Fool Live video clip, recorded on July 14, Fool.com contributors Brian Withers, Toby Bordelon, and Matt Frankel, CFP, discuss whether the company could be worth a closer look for long-term investors. 

Brian Withers: Toby, as we've talked about Peloton (PTON 0.66%) a lot, I thought this was an interesting topic for us to take on for The Wrap. iFit, I-F-I-T, which is the owner of NordicTrack and the iFit exercise platform, is looking to acquire fitness platform Sweat for $300 million. iFit is going public and they're buying Sweat for about $300 million. As it looks to take advantage of the workout from home trend, and iFit was formerly known as Icon Health and Fitness, but it already has a fitness platform and it's adding to it with this Sweat application. It seems that iFit has been doing this online on-demand and studio classes for a while now. This is not a new thing for them, and has a full line of equipment. You go to its website and it's got rowing machines, treadmill, spin bikes, even a workout tower for people who want to do lifting and be engaged with on-demand classes or an instructor. You can even use the app without equipment. The S-1 isn't out yet, the S-1 is typically the thing that the company files with the SEC to talk about all of its financials that isn't out yet, but the valuation is currently in about the $7 billion range. Peloton's market cap is five times that number. Does this upcoming IPO in iFit gets you interested at all, Toby?

Toby Bordelon: It gets me a little bit interested. Here's the thing. iFit has been around for a while as you alluded to. I think you and I looked at this briefly when we did a show a while about in-home fitness. Even then we were looking at it and one of my criticism, Mike things company, which they had a couple -- two different platforms that weren't fully integrated across all their products, and now that's a third one. I don't know, like their history that they haven't been able to get much traction in the market makes me worry their problem is execution, so that makes me less excited about what they're offering. Peloton, I think is still the No. 1 in terms of excitement and customer adoption and the way people like it, the enjoyment people get from the platform. I'm much super-excited about it, is one to look at definitely. I just don't know how big this market really is. More competition isn't great for Peloton, as more that comes on, the less. I think they're tracing a somewhat small market. I will feel a lot better about Peloton if they were pushing out new device more rapid clip. The benefit that iFit has, they get everything. They got the tread, they've got the bike, they've got rowing machines, they've got the weight tower you talked about. Peloton's only got the bike and the treadmill and the tread has had issues, they had to do a recall. If they are able to push more out faster, that makes me a lot happier. It creates less of a reason for people to look at other options other platforms, so that's one thing Peloton needs to do. But overall, I mean, I look at it, but I don't know if I'd be rushing to invest in iFit anytime soon.

Withers: Yeah, and folks may not know you're Peloton customer, Toby. How's that been working out?

Bordelon: I'm, I have a Peloton, it's great. We went on vacation a couple weeks ago and I haven't actually used when I got back. I broke the habit. I need to get back into it. My wife is back into it faster than I have, but we were both on the bike three or four times a week.

Withers: That's fantastic.

Bordelon: We loved it, like we didn't think we'd use it this much, but it's been great, especially with record heat in Reno right now, I don't want to go outside. The bike is the solution to the weather issues you have when you want to do some working out outside.

Withers: Excellent. Great perspective. I love the idea of this trend and things like Peloton and Mirror from Lululemon (LULU 2.64%) and bringing technology to home gym equipment is to me what home workout equipment was missing. You need some peer pressure and some motivation maybe to use it on a regular basis, but as an investment, I'm not sold on this category. There's massive upfront costs for the consumer and Peloton's done a good job of getting around that with a buy now and pay later situation, but the revenue that they get upfront for that piece of equipment, that piece of hardware, that physical product is significantly more than the ongoing subscriptions that they pay. Let's just do the math here, $2,400 bike versus a $40-a-month family subscription, a $120 a quarter, so that bike is 20X revenue of your subscriptions in the quarter. As the bike revenue growth slows down or the tread slows down, I think these unprecedented growth rates that these devices are producing are really going to impact these companies potentially in a difficult way.

Matt Frankel: I would've thought that Brian would have been the one who is really bullish on those, so that makes me even less optimistic about this trend. I love Peloton, like Toby, we have a Peloton it at our house. My wife uses it all the time. I'm a workout outside of the house type of guy, not outside. Columbia, South Carolina, is just as hot as Reno during the summer. I do what's called Orangetheory Fitness, I don't know if you're familiar with that chain, and I swear by it, but the Peloton model is a great model. I think all of these stay-at-home fitness companies are going to have a rougher couple of years, as the pandemic is winding down, then people are really giving a credit for. Like Brian just said, the hardware sales, the actual bikes and equipment is going to start tapering off. Everyone who really wanted a Peloton bought one during the pandemic, at least the people who want one now. I could see that the subscription revenues great, I mean, it's a fantastic revenue model, especially in Peloton's case, where you can't even turn on the treadmill now without a subscription, I don't know if you saw that change. It's a great business, I think they're going to have a rougher time in the reopening than people are giving it credit for all these stay-at-home fitness companies.