The sales surge Peloton (PTON 2.62%) experienced during the pandemic was clearly beneficial for the company. With many gyms closed to help slow the spread of the virus, demand for home fitness equipment spiked. The boost in interest was so pronounced that order-to-delivery times jumped from the usual one to three weeks to over 10 weeks at one point during the pandemic. Metrics like this had investors thinking of Peloton as a stay-at-home stock.
As economies worldwide reopen, many of those same investors are now partly to blame for share prices of Peloton falling by roughly 20% so far in 2021.
What those investors may not be accounting for is that Peloton was thriving as a company and a stock even before the onset of the pandemic, and it has an opportunity to continue doing so even as economies reopen.
Image source: Peloton.
Growth was not reliant on economic lockdowns
Peloton's popularity grew so rapidly during the pandemic that it's easy to forget it has grown sales by at least 100% a year for six years running. Underlying its growth is a customer value proposition that is often more favorable than gyms for many people. Working out at home is more convenient; it removes the need to commute to a gym, look for and maybe even pay for parking, and compete with other gym members for limited equipment.
There are an estimated 180 million fitness center members worldwide that Peloton can target with its products and services. While some gym users cannot be converted (I use the gym mainly for the basketball courts), many would prefer exercising at home with Peloton.
To continue on its path to capturing that market, Peloton is expanding internationally. Starting with Australia this year, Peloton plans to enter one or two new markets each year. Since consumers love the products in Peloton's markets, it is safe to assume a warm reception as it expands.
Moreover, Peloton can reach a larger group of exercisers by offering more products, which is exactly what it intends to do. It started by offering an interactive bike and added a treadmill to its product lineup recently. Interestingly, the market for treadmills is estimated to be two to three times larger than the market for exercise bikes.
Image source: Peloton.
Peloton can thrive even in reopened economies
One of its main constraints in the recent past is supply shortages and shipping delays, two issues that are likely to abate as economies reopen. Order-to-delivery times reached 10 weeks earlier this year, but the company made investments in expedited shipping and has generally resolved the problem.
To help with the manufacturing capacity that it will need to fuel the growth of new products and new markets, Peloton bought manufacturing company Precor, and the sale recently closed. Peloton said it would begin manufacturing some of its products at the new facilities near the end of this year.
The reopening of economies will certainly slow down demand as folks will have more options for exercising. But the combination of expanding markets, innovative products, and increasing manufacturing capacity could make Peloton one company that thrived during lockdowns also do well in reopening economies.
