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Peloton is looking beyond the home for its next stage of growth, following a turbulent year that saw the company face a series of lawsuits and government investigations. Those took place in the wake of a voluntary treadmill recall in May, in response to at least 70 injuries and one death involving Peloton treadmills.
To maintain its market leadership in this niche industry, the popular fitness platform has been aggressively investing in marketing, partnerships, and acquisitions. I remain neutral on Peloton stock despite the promising signs because of the rich valuation in the market. (See Peloton stock charts on TipRanks)
Capitalizing on the Reopening of the Economy
Peloton is attempting to expand its business beyond the home fitness market, by making its connected workout equipment under the Precor brand available online for hospitality customers. After reporting a larger-than-expected loss in the fiscal fourth quarter, the company is taking steps to expand its commercial operations.
In April, the company closed the $420 million acquisition of Precor, a manufacturer of treadmills, ellipticals, rowers, and other strength training equipment that is commonly seen in commercial settings such as health clubs, universities, and hotels.
Customers in the hospitality business may now purchase both connected exercise equipment and Precor items online through a single platform, according to the announcement made by the company last Monday.
Peloton also intends to work with hotel partners to provide exercise cycles in rooms when requested, as well as to expand its membership base through commercial partners, as travel restrictions are coming to an end sooner than initially expected. With the ease of pandemic restrictions, users are returning to the gym and outdoor activities, reversing a major challenge to the company’s growth.
Peloton launched a corporate wellness program to stay ahead of the competition and maintain growth momentum, post-pandemic. This program offers benefits to employers that partner with Peloton by opting to use Peloton equipment in their office gyms. The company recently reduced the price of its top-selling product in an effort to attract more customers as well.
Additionally, the connected fitness company is aggressively expanding its product portfolio beyond workout equipment. The company officially debuted its private-label clothing collection, titled Peloton Apparel, on September 9th, after years of cooperation with leading apparel brands such as Nike , Inc. (NYSE:NKE), Adidas AG (DE:ADSGN) (ADDYY (OTC:ADDYY)), and Lululemon Athletica Inc. (NASDAQ:LULU).
Peloton is also expanding its workout-related content with the release of a video game in which its connected bike serves as the controller. In July, the company announced an in-app video game called Lanebreak, which challenges riders to match and maintain their resistance or cadence according to the tablet’s indications in order to achieve the maximum possible score, which they can then compare with other members. It’s a rhythm-based game in which obstacles move in time with the music’s beat. Lanebreak is only available to Peloton bike owners and subscribers.
In June, the company also revealed a digital heart-rate wristband, which would be its first step into the wearables industry.
Wall Street’s Take
Based on the ratings of 22 analysts offering 12-month price targets, the average Peloton Interactive price target is $130.10, which implies upside of 40.4% from the current market price.
Based on the ratings of analysts, Peloton stock is trading with an acceptable margin of safety today. That being said, investors might need to remain patient with Peloton for a few more years to deliver the goods, as the company needs to address many challenges in the post-pandemic era, once mobility restrictions are no longer in place.
Takeaway
Peloton is now positioning itself to benefit from the recovering economy, after benefiting from a surge in demand for home-fitness equipment due to pandemic-related restrictions. Partnering with the hospitality sector seems to be a prudent move, given that the leisure sector is bound to recover sharply in the coming months.
Moreover, the acquisition of Precor has provided Peloton with manufacturing capacity in the United States, as well as expanded its customer base to include health clubs, universities, and hotels.
Peloton certainly is moving in the right direction, but its rich valuation might push growth investors away from the company for the time being.
At the time of publication, Dilantha De Silva did not have a position in any of the securities mentioned in this article.
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