Please ensure Javascript is enabled for purposes of website accessibility

Why Peloton Is a Great Business Before, During, and Even After the Pandemic

By Jon Quast – Sep 18, 2021 at 7:30AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

It did great in 2020, but it was doing great before the pandemic and its customer satisfaction scores suggest it will keep doing well into the future.

Fitness company Peloton Interactive (PTON 0.30%) saw its business thrive in 2020 when many brick-and-mortar gyms were closed. This causes some investors to question whether this company can continue excelling into the future or whether it was just a pandemic-inspired flash in the pan. In this video clip from Motley Fool Backstage Pass, recorded on Sept. 3, contributor Jon Quast explains to Millionacres editor Deidre Woollard why he believes Peloton is a great business even without the unique circumstances created by the coronavirus pandemic.

10 stocks we like better than Peloton Interactive
When our award-winning analyst team has a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

They just revealed what they believe are the ten best stocks for investors to buy right now... and Peloton Interactive wasn't one of them! That's right -- they think these 10 stocks are even better buys.

See the 10 stocks


*Stock Advisor returns as of August 9, 2021


Deidre Woollard: Peloton, people talked about it, is one of those pandemic stocks. It had a heck of a run, everybody was home, everybody was on their bike competing with each other, but what's happening right now?

Jon Quast: Yes. Like you said, this was put in the basket of pandemic stocks. Really the reality is yes, they grew their revenue about 100% year over year during the pandemic season, the first four quarters of the pandemic, but that's what Peloton was doing before the pandemic as well, doubling their sales every year. This is a young company.

Let's zoom out for a second. Why might you want to hold onto Peloton right now? The stock is down, people are worried about slowing growth, they're worried about coming out of the pandemic, with the vaccine coming out people are going outside, not using their bikes as much maybe, the whole brand appeal is losing its luster.

But in reality, this is a young brand. They shipped their first bike in 2014, not even 10 years ago. Seven years ago, they shipped their first bike. Over that short amount of time, they've already been elevated to top-tier brand status. A company named Comparably, they just ranked brands out there. Peloton took the No. 1 brand spot right now ahead of companies like Amazon.

There's another brand survey called the Brand Awareness Index [Editor note: The speaker misspoke. He was referring to the Brand Relevance Index by a company called Prophet]. Peloton takes the No. 2 spot behind Apple. It's ranked ahead of things like KitchenAid, things like Lego as far as brand recognition. People love the Peloton brand.

Another thing that really bears this out is their net promoter score. A good net promoter score is anything above zero really and anything above 50 is excellent. Peloton comes in at 76. This is a very, very high net promoter score. People absolutely love their brand.

What happens because of this? Tons of people are buying the hardware, the bikes, but all of those things come with a subscription added on. People are paying 39 bucks a month.

At the time that Peloton went public, 2019, over the five years that they had been selling bikes, 92% of all of those bikes still had an active subscription five years later. You go to present day, we're still at a 92% retention over the past 12 months.

This is a lot higher-margin, too, it's currently about 70% gross margin for the subscription products. I think that's really the thesis here for Peloton. Can they attract new users over time? Yes. Can those hardware sales convert into subscription revenue? Yes. Is it sticky? Yes. Can that throw off good profits in time? Yeah, I really believe it can.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Jon Quast owns shares of Peloton Interactive. The Motley Fool owns shares of and recommends Amazon, Apple, and Peloton Interactive. The Motley Fool recommends the following options: long January 2022 $1,920 calls on Amazon, long March 2023 $120 calls on Apple, short January 2022 $1,940 calls on Amazon, and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Peloton Interactive Stock Quote
Peloton Interactive
$10.06 (0.30%) $0.03
Apple Stock Quote
$148.11 (-1.96%) $-2.96
Amazon Stock Quote
$93.41 (-0.77%) $0.72

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 11/26/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.