Peloton for All? The High-End Fitness Company’s IPO Hints at a Tesla Strategy

Since its launch in 2012, Peloton, the exercise equipment and online instruction company, has courted the Equinox crowd far more than those who prefer a more budget-friendly Planet Fitness membership. While Peloton’s $2,245 stationary bikes (including delivery) have been gleefully pilloried as symbols of coastal elitism, with the company expected to launch an initial public offering of shares of its stock this week, the IPO filing hints at a future with a far broader customer base.

Call it the Tesla strategy: Hit the high-end, high-profit portion of the market first, then go broader.

In addition to its hardware, Peloton’s primary product is a $39 per month subscription to classes streamed directly to their machines’ built-in screens. The company’s first mass market product, Peloton Digital, was released in its current form in 2018. The less expensive subscription delivers yoga, running, and live cycling classes to phones or tablets for $19.49 per month, and doesn’t require an expensive Peloton fitness machine.

The brand is still fostering a sense of exclusivity: Peloton Digital lacks some key social features of a full-fledged Peloton equipment-and-membership combo. For instance, Digital members can’t compete with Peloton bike owners in performance rankings.

That’s not a dealbreaker for fitness buffs who want the live instruction but prefer to pair it with a more budget-friendly machine, like the $345 Peloton-alternative bike from Amazon that one blogger chose.

In its IPO filing, the company says 511,000 of its current subscribers own Peloton bikes and pay $39 per month for a full membership, while 102,000 are digital membership only. That could be substantial enough to make potential investors’ hearts race a bit faster as they weigh whether the company can justify the $8 billion valuation it’s seeking in its IPO. Peloton is a coveted but niche brand. Investors would certainly prefer it to be the category’s Apple, with cachet and a huge market.

And the company is still moving ahead with new products featuring stunningly high prices, like a treadmill that retails for $3,995.

There is some risk that cheaper products could cannibalize Peloton’s higher-end offerings, which could hamper its path to profitability. The company says its profit margins on content for full members is about 40%, which would mean it’s nominally losing money on those $19.49 digital subscriptions. But an expanding subscriber base would raise margins. Peloton also regards Peloton Digital as something of a loss-leader, since it “provides users an opportunity to try Peloton content before they purchase a Connected Fitness Product.”

The company says its fastest-growing market segments are people under 35 years old, or with household incomes under $75,000. It also says that “a significant and growing portion of our members access our platform through Peloton Digital.” That may mean a growing proportion of its subscribers are digital-only. Full memberships also include access to the digital service, though, so it might simply mean more full members are streaming classes away from their machines.

Digital subscription growth would be a positive indicator for one of Peloton’s many ambitions. The company’s IPO filing describes it not just as a fitness, technology, apparel, and “experience” provider, but as a media company. And for that part of the play to work, Peloton will have to welcome the masses.

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