Propelled to triumphant heights of success and share value during 2020's lengthy COVID-19 lockdowns, the stock for connected exercise equipment maker Peloton Interactive (PTON -7.32%) has stumbled recently. The reasons cited include fitness centers reopening, challenges related to equipment troubles (including a major product recall), and new competitors springing up.
One such rival, iFit, parent company to the NordicTrack brand, has existed for many years but is just now throwing its hat into the ring of public stock market trading with an initial public offering (IPO).
Here's a look at what this might mean for Peloton and its position as king of the hill for home workouts.
Image source: Getty Images.
Is iFit's IPO worth working up a sweat over?
Planning to trade on the Nasdaq Stock Market under the ticker IFIT, iFit filed its S-1 Registration Statement with the Securities and Exchange Commission on Aug. 31. The company's valuation after its IPO was expected to be around $7 billion, according to Bloomberg sources speaking on the issue back in March. This is about a quarter of Peloton's current valuation of approximately $29.6 billion.
Bearing in mind iFit's fiscal year begins on June 1 and ends on May 31 (so fiscal year 2021 ran from June 1, 2020, to May 31, 2021), the company's prospectus reveals some strong metrics, and others with a less positive look. iFit's revenue grew explosively in its most recent fiscal year, rising 104.9% year over year to $1.75 billion. Fiscal 2020 saw more modest but still vigorous revenue growth of 21.7%.
Subscribers to iFit's fitness program have grown at an 81.3% compound annual growth rate over the past four years. The number of individual members has surged from 103,000 in 2017 to 1.1 million at the end of fiscal year 2021. Total workouts on the iFit platform rose 181% from fiscal 2019 to 2020, then skyrocketed another 229% in 2021 to 112 million workouts. The company's revenue comes both from subscriptions and from sales of physical exercise equipment, including elliptical trainers, treadmills, and exercise bikes from its NordicTrack subsidiary.
On the potential downside, its bottom line has dropped into negative territory, from a $56.6 million net gain in 2019 to a $516.7 million loss in fiscal 2021. Expenses came in large part from a massive spike in sales and marketing costs, which rose 122.4% year over year from $278.4 million to $619.4 million.
General and administrative expenses more than doubled between fiscal 2020 and 2021, but ignoring marketing outlay, iFit would have generated positive net income of $102.7 million rather than a net loss. Arguably, this makes iFit's net loss less alarming for future investors, given that advertising spend is a voluntary expense and it is laying the groundwork for future gains. Significantly, the company increased its available cash from $100.3 million in 2020 to $146.4 million in 2021.
Has Peloton exhausted its possibilities for now?
The COVID-19 pandemic and resulting lockdowns were a powerful boon to Peloton and its shareholders. Its stock price soared approximately 644% in the period from September 2019 to December 2020. Peloton's share price has tumbled recently from a January peak close to $170 to below $100 per share in early September.
Reaction to reopening gyms as COVID-19 cases ebbed over the summer dealt the main body blow to Peloton's share price. Companies such as gym franchiser F45 Training, with a business model integrating the digital world and the motivation of brick-and-mortar, real-world gym communities, saw revenue surge. Turning to Peloton's current situation, fiscal fourth-quarter revenue rose, but the company registered a bigger loss than last year, and it failed to reach the $1 billion in quarterly revenue forecast by Wall Street.
Image source: Peloton.
The use of Peloton's fitness app is has been dropping in 2021, too. App usage is a crucial yardstick for companies that rely on the revenue generated by offering a subscription service like both Peloton and iFit do. Average daily user totals for Peloton's app shrank 41.7% between April and August, according to Forbes magazine, citing data from Apptopia. During May, June, July, and August, iFit's app use fell 16.5%.
A dropoff during the summer months is only to be expected as sunny weather prompts more outdoor exercise. However, Peloton's large drop reinforces the idea its retreat could be long-lasting and fundamental and that it will have trouble regaining its 2020 peak soon.
The takeaway
Overall, Peloton still shows the hallmarks of being a positive investment, and its tanking stock price is probably best viewed as a buy-in opportunity. The company is slashing exercise bike prices by $400, aiming to boost its subscriptions. Cool weather returning and reduced outdoor physical activity opportunities, along with a seasonal upswing in COVID-19 cases could amplify its growth efforts. Its performance is still excellent, perhaps just slowing to a marathon pace rather than 2020's blistering sprint. At least one stock analysis firm, Argus, has kept a $120 price target on Peloton, citing its first-mover advantage and "COVID hesitancy" regarding physical gyms.
It's probable that iFit won't fall short, either. The company is growing its revenue at a breakneck pace, and while it turned in a significant net loss for fiscal 2021, this was because of advertising expense and not poor performance. The company's cash position is strengthening even before its IPO and the windfall from its launch should give it even more funds for expansion, internal investment, and potentially even opportunistic acquisitions.
Both Peloton and iFit look like long-term winners. Even with near-term downward price corrections likely, there's every reason to be bullish about these two consumer discretionary stocks. Both address a growth market, maintaining health and fitness in the comfort, safety, and convenience of one's own home, and look to have the muscular business model needed to thrive into the future.
