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Here's Why Peloton's Most Important Number Is $1,495

By Neil Patel – Sep 29, 2021 at 5:23AM

Key Points

  • Weak financial guidance for the current quarter disappointed the market.
  • Management reduces the Bike price to $1,495 with the goal to attract new customers.
  • Competition from other at-home fitness manufacturers, and traditional gyms, presents a challenge.

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Investors must pay attention to how the company's Bike sells in the quarters ahead.

Peloton Interactive (PTON -0.96%) reported its fourth-quarter financial results on Aug. 26, disappointing Wall Street with a wider-than-expected loss and weak guidance for the current quarter. Shares are down 19% since then, and many investors are now wondering if the jaw-dropping growth that made the business a household name is coming to an end. 

For consumers, one of the biggest complaints is the four-figure price tags of the connected-fitness maker's products. Management is addressing this, and it's why the number $1,495 is so important for investors to know.  

person riding a stationary bike while someone stands beside

Image source: Getty Images.

Can I afford this? 

CEO John Foley said during the earnings call with analysts: "Today, we announced our latest step on the journey to broaden the accessibility of our products. We are lowering the price of our original Bike by $400 to $1,495." This marks the second time in less than a year that Peloton has reduced the price of its flagship product, the last time being in September 2020 when the more expensive Bike+ was introduced. 

Management insists that shareholders should view this in a positive light, as it thinks it meaningfully expands Peloton's addressable market. Obviously, a lower price point opens up the opportunity for more potential customers. And this makes sense for the company given that in fiscal 2020, more than half of Peloton's U.S. Bike customers came from households generating more than $100,000 in annual income. So, in order to attract less-affluent exercise junkies, it appears like this is a good strategic move. Furthermore, gaining more users who then pay the high-margin and recurring $39 monthly fee is valuable. 

On the other hand, the argument can be made that the Bike's price drop signals falling consumer demand, especially given how crowded the at-home fitness market is becoming. Consumers have a plethora of choices to get their sweat on. Widely recognized brands like Lululemon Athletica's Mirror and Apple's Fitness+ compete, respectively, with Peloton's connected-fitness equipment and its digital-only offering. Then you have the return of traditional brick-and-mortar gyms. Planet Fitness, for example, reported growing its membership base in each of the first six months of 2021, and it now totals just under 15 million. 

We'll have to wait and see to tell whether Peloton made the right move here. The timing of the announcement, particularly when economies are opening back up, the competition, and Peloton's treadmill safety issues, makes me wonder if this was out of desperation. 

Pay attention to this 

For the current quarter, Q1 of 2022, management expects revenue of $800 million, far less than the $1 billion Wall Street was expecting. The bright spot, however, is that by the end of the fiscal year 2022, Peloton is forecasting to add 1.3 million new connected-fitness subscribers. These are customers who actually buy a piece of equipment, supporting the cheaper Bike's prospects. 

CFO Jill Woodworth noted this optimism in the earnings call: "We saw these trends going into fiscal '22. ... [S]trong demand for Bike and Bike+, with higher unit sales expected than in fiscal 2021." Pushing greater volumes of the Bike over the next year will make management's decision look like the right one. 

For investors, this is what you need to pay attention to in subsequent quarterly earnings releases. If things go as management expects, Bike sales should soar like they haven't before. Otherwise, Peloton's impressive growth story, and its market-beating stock performance, could be things of the past. 

Neil Patel owns shares of Apple. The Motley Fool owns shares of and recommends Apple, Lululemon Athletica, Peloton Interactive, and Planet Fitness. The Motley Fool recommends the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.

Stocks Mentioned

Peloton Interactive Stock Quote
Peloton Interactive
PTON
$12.34 (-0.96%) $0.12
Apple Stock Quote
Apple
AAPL
$141.84 (-0.75%) $-1.07
Lululemon Athletica Stock Quote
Lululemon Athletica
LULU
$375.10 (1.38%) $5.10
Planet Fitness Stock Quote
Planet Fitness
PLNT
$76.39 (1.08%) $0.82

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

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