At an investor day held after the release of exceptionally strong financial results, Peloton Interactive said it felt that it could hold its own against competitors like Apple with its subscription-based model and its vertical integration to deliver a total fitness experience, creating a global community of consumers who want to work out at home on their own schedule. Insisting on the benefits of high-quality content and equipment that is serviced well, the company’s management said that its value proposition is analogous to the subscription-based system that Netflix is successfully offering in streaming entertainment.
Peloton’s presentation coincided with an announcement by Apple that it is planning to launch a remote fitness service at $9.99 a month by the end of this year, similar to the Peloton app or the Nike Training Club app. Its new Apple Fitness+ app will provide virtual fitness classes with heart rate monitoring and other metrics from the subscriber’s Apple Watch. The app will work on an iPad, an iPhone or Apple TV. Fitness+ can be bundled with other Apple subscription services such as Apple Music, Apple TV+ or Apple News+. The workouts will be tailored to a variety of sports, using specific third-party equipment or just the body’s weight. Apple has also announced the addition of a blood oxygenation sensor in its latest line-up of smartwatches. Unlike Apple, however, Peloton supplies its own fitness equipment as part of its service package.
In addressing financial analysts, Peloton’s management told investors that it sees its own $39 monthly subscription price for its Connected Fitness program as “sacrosanct” at this time. It wants to add value to it by adding more content, using three production studios at its new headquarters in New York, which will be completed next spring. Its software content has been moving in the direction of total body workouts. In the past year, the company expanded its offering of fitness content in strength, yoga, meditation and new floor-based categories such as Fit Family and Dance Cardio.
Peloton told investors that it will also prioritize investments in the supply chain and logistics to speed up delivery times. Factory automation should allow it to maintain margins and quality, it said. A new manufacturing plant in Taiwan is due to be up and running by the end of the current calendar year, and this should help solve recent bottlenecks due to the unexpectedly high demand for its equipment during the coronavirus pandemic.
The company will continue to lower the price of older models to help reach a target of 100 million users, but in the short term, this will affect its gross margins. The management also said that apparel is currently its fastest-growing segment, indicating that Peloton is becoming a lifestyle brand.
On the subject of international expansion, Peloton said it was content with its presence in the U.S., Canada and Germany, where half of the world’s 180 million gym memberships are sold.
As reported elsewhere, Peloton announced last week its first quarterly profit and reported that subscriptions to its Connected Fitness program had risen by 113 percent to 1.09 million in the fourth quarter ended on June 30. Its Digital subscriptions, which cost $12.99 per month and don’t require the use of the company’s equipment, jumped by 210 percent to over 316,000 during the period. The company also revealed a total membership base of 3.1 million, up from 1.4 million people one year earlier, and a 12-month retention rate of 92 percent.
Peloton is projecting that subscriptions to its Connected Fitness program will reach 2.05 to 2.10 million by the end of the current financial year, contributing to total annual revenues of $3.50 to $3.65 billion. It has refrained from publicizing any longer-term targets.
In addition, Peloton will be a topic at Fibo’s digital event, where Tom Cortese, co-founder, chief operating officer and head of product development at the company, will speak at an on-demand session on Oct. 1 and Oct. 2 about his vision of the future of fitness, creating a human fitness ecosystem and how at-home fitness and traditional gyms will evolve.