Shares of Peloton Interactive (PTON -1.61%) were up on Monday after the company announced a partnership with hotel chain Hilton Worldwide Holdings (HLT 0.99%). As of 1 p.m. ET today, Peloton stock was up about 7%. Hilton stock was little changed with this news.
According to this morning's news release, Hilton will place at least one Peloton Bike in all 5,400 Hilton-branded hotels by the end of 2022. According to Peloton, 90% of its members prefer hotels with its equipment, so this move also could be seen as serving its existing customer base.
This is Peloton's third major partnership announcement in less than a month, all of which could help acquire new memberships. On Sept. 21, the company expanded its partnership with UnitedHealth Group to give access to the Peloton app for up to 10 million UnitedHealthcare members as part of their benefits package. And on Sept. 29, Peloton announced it would be selling equipment in 100 locations of Dick's Sporting Goods.
The structure of Peloton's partnership with Hilton wasn't disclosed. But Hilton Rewards members will get a 90-day free trial of the Peloton app. And they'll be eligible for select discounts on Peloton exercise hardware.
Putting it all together, the name of the game right now for Peloton appears to be increased distribution and lower barriers to entry to get as many new subscribers as possible.
Peloton generates revenue for its subscription services from members who have its hardware. But it also generates subscription revenue from those who just use the Peloton app. Over the last 12 months, the company's gross margin for subscription products was 68%, which is strong and understandably motivates management to grow this side of the business. Therefore, its recent partnerships make sense.
But Peloton is giving away a lot, specifically with UnitedHealthcare and Hilton. It will be interesting to see how many subscribers become paying subscribers or ultimately purchase hardware once their introductory offers expire.