Share Prices & Company Research


13 November 2020


Peloton achieved a profit for the first time since its IPO, turning over US$89.1m from a loss of US$47.4m a year earlier. These results smashed analysts’ earnings estimates. The company has captured a reasonable chunk of the home fitness market and does not expect sales and market share growth to slow down any time soon, with sales crushing estimates with an increase of 172% this year. Peloton is innovative in the way it generates cash flows; not only does a customer have to make a sizeable purchase for a home exercise bike or treadmill with the integrated software, but they also pay US$39 per month to receive workouts and fitness plans etc. Over the past few quarters, the company has built huge brand awareness despite a piecemeal advertising spend, achieving this instead through clothing and merchandising sales. As such, the company has amassed a hefty US$1.8bn in cash, ready to spend on improving and developing its products.

In the last three months, Peloton’s user base has increased 113% from the year before, accumulating a whopping 3.1m members in total including both equipment-needed and equipment-free plans. Peloton has clearly capitalised on the closure of gyms, but is this solid performance over the Coronavirus period foreshadowing the future of the company, or is it just a fad?

Lululemon is a luxury designer and retailer of athletic clothing and leisurewear, targeting its products to upper-middle-class individuals, and rather than a general mass fitness market, leading to an accidental move into the fashion market. Lululemon centres its growth strategy around three factors: product innovation, digital growth and accessing international markets. Lululemon, just like Peloton, has observed a surge in demand during the pandemic, as can be seen by its expectation-beating results this year.

It is important to recognise the significance of Lululemon’s growth, at a time when traditional bricks and mortar retailers are surviving hand-to-mouth. Online sales of apparel and accessories were up 157% this year, but with its stores contributing around three quarters of total sales, an increase in online traffic is a welcome one. The company is making strides to crack the international markets; e-commerce sales in China and Europe are now experiencing triple digit growth.

Despite the company’s pedigree in clothing, the recent acquisition of MIRROR, sees Lululemon taking advantage of new consumer trends. MIRROR is very much what it says on the tin; a traditional wall mirror that, once hung and plugged in, becomes an interactive workout screen, where users partake in live home workouts, while keeping an eye on their performance stats. Much like Peloton, customers pay a subscription membership to gain access to new workouts and system updates. At around US$1,000 per unit, it is difficult to see whether customers will find value in MIRROR, particularly in an age where a wearable sports watch can be purchased for just a fraction of the price. The right marketing will be key.

A social movement is changing the face of exercise; the winning formula is not yet clear, but new and innovative products give us a flavour of the future. The ‘gamification’ of home exercise is only likely to increase as the pandemic takes hold of the life we have been used to.

Both Lululemon and Peloton are leading the way; one an apparel company, breaking the home fitness market, the other a home fitness company breaking the apparel market. Both have shown how the synergy of both can drive growth and brand awareness, paving the way for more established players to leverage their brands and replicate the model.

Please note that investments and income arising from them can fall as well as rise in value. This communication is for information only and does not constitute a recommendation to buy or sell the shares of the investments mentioned.
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