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Peloton's Future Is a Lot More Than Bikes With an iPad

By Travis Hoium – Nov 12, 2021 at 10:00AM

Key Points

  • Peloton's user base continues to grow.
  • New products are hitting the market regularly.
  • As this subscription service gets stickier, Peloton is well positioned to be a great stock long-term.

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The work-from-home bounce is over, but Peloton's core business looks better than ever.

Peloton Interactive (PTON -3.01%) stock has gotten hammered in 2021, losing about a third of its value as growth slows and investors sell off stocks that benefited from the work-from-home trend. The disappointment over a drop in revenue over the last two quarters and a loss of $376 million -- or $1.25 per share -- in the fiscal first quarter of 2021 is understandable. 

What shouldn't be lost along the way is just how different Peloton's position is today versus when COVID-19 hit. This is a company that has gone from high-risk upstart to a potentially dominant workout business, and should be a growth stock long-term. 

Person doing yoga on the Peloton app.

Image source: Peloton.

Peloton has done the hard part

Peloton is a workout company, but financially it makes its money on subscriptions. And COVID-19 helped Peloton subscriptions explode. 

In the last six quarters, Peloton's subscriber base has nearly tripled to 2.49 million subscribers, and that number was up 161,000 sequentially. Hardware sales will ebb and flow, but subscriptions are high-margin, and that's where the money is -- and the company now has the scale to build a huge business.

Making subscribers stick

Attracting subscribers is the hardest part of the business. Now Peloton needs to make its subscription so attractive and sticky that people don't leave. 

Over the last year, Peloton has added more yoga, strength, meditation, and other programming, but it's just getting started. Peloton Guide is the next product launch, a strength-training experience that includes a camera to monitor your performance and a heart rate monitor. The idea is to optimize your performance by recommending workouts based on your activity.

I think we will see Peloton add more software and streaming content, but we may be seeing early moves further into hardware like wearables. Peloton has become a go-to bike or treadmill for its customers, but to complete the full-body workout journey the company will want to be able to offer all kinds of services that add value and track progress inside and outside the home. 

Peloton is definitely trying to build a workout lifestyle brand, and it needs more than a bike to do that. The company needs to have a touch point in many parts of the workout journey, and we're just starting to see that product vision built out with the bike, treadmill, and now strength training monitor. 

What to watch as Peloton grows

Of course, Peloton wants to sell more bikes and treadmills, but over the next few quarters I think it's important to see the company's subscription base continue to grow. If that happens, the company will build a high-margin financial base, which will show that the company's products and services are very sticky. 

I'll also be watching new products closely. Peloton Guide is a step toward a more holistic product offering, but I think we will see more hardware like this that creates loyalty and lock-in for customers. A smartwatch would also make sense, as would more apparel offerings. Anything Peloton can do to make itself stickier with customers and build the user base will be good for the company long-term, despite what the stock market thinks about the stock today. 

Travis Hoium owns shares of Peloton Interactive. The Motley Fool owns shares of and recommends Peloton Interactive. The Motley Fool has a disclosure policy.

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