Peloton´s 2021 business results & intensity of competition
Updated: Feb 15
2021 has been a weird year for Peloton. After becoming the connected fitness category leader in 2020, pressure from stakeholders such as customers, investors and competitors increased dramatically. However, a thorough analysis of Peloton´s 2021 financial and business results demonstrates growth in revenues, member acquisition, and average workouts, while keeping similar retention levels. From a brand perspective, it has become a household name, a symbol of pop culture and it has expanded its product portfolio with new products and digital services.
Their supply chain capacity though has not been able to keep pace with their efforts to scale the business and this has lead to delays, technical problems and more importantly, customer complaints. In this post we will deep dive into Peloton´s business KPIs and how the level of competition has intensified throughout 2021.
Peloton´s 2021 business results at a glance: Keeping momentum going
As we covered in our analysis of Peloton´s 2020 performance, their business model evolves around offering a connected fitness & wellness experience across a wide scope of disciplines and they do so through hardware (“Connected Fitness Products”) and monthly subscriptions (“Connected Fitness Subscriptions” worth $30/month and "Paid Digital Subscriptions" worth $12.99/ month). As you can see below, their main source of revenue comes from their Connected Fitness Products (around 80% of total revenue) and the remaining 20% is derived from their Paid Digital Subscriptions.
The numbers, which you can checkout on their website pretty much speak for themselves, and Peloton is clearly maintaining the fantastic momentum of their 2020 results in terms of revenue and member growth:
Peloton Connected Fitness Subscriptions grew 114% to around 2.3 million while total members increased to 5.9 million (+90%)
Paid Digital Subscriptions grew 176% to over 874,000 (Keep in mind they had grown more than 200% in 2020...)
Fiscal 2021 revenue increased 120% to $4.02 billion
Average of 22 Monthly Workouts per Connected Fitness Subscription during 2021, (versus 17.9 in the same period of 2020) which translates to almost 460 million workouts
Average Net Monthly Connected Fitness Churn was 0.61%
These are simply impressive figures on their own but they gain more relevance in comparison to their remarkable performance over they past several years:
What seems to worry investors most is the significant increase in Net Losses, which have gone from $71.6 million in 2020 to $189 million in 2021. However, putting it into context vs 2019 figures, we can see that net losses then were $195 million within a business operation that was much smaller.
Peloton´s “North Star Metric”: Member workouts keep on growing
In our view, “member workouts” is Peloton´s north star metric:
It proves that the customer is obtaining value from the service
Drives recurring revenue
Are unique to the business and it is a metric that the entire organization can be accountable to.
Looking at Peloton´s reports, the rate of growth in member workouts is remarkable:
What also stands out is that members are actually diversifying the type of workout they carry out as years go by; this is also a great sign of customer engagement, and again, higher engagement should drive higher revenues for Peloton.
Peloton´s NPS has decreased in 2021: From 83 to 70
As shared by Comparably, Peloton´s 2021 Net Promoter Score is currently 70, while as of December of 2020 it was 83. Specifically, the brand had 82% of promoters and 12% of detractors:
This may be something to watch out for in 2022, specially if the brand is not able to cope with the supply chain issues that it has faced during 2021, and that lead to its acquisition of equipment manufacturer, Precor, for $420 million.
Peloton keeps growing internationally and will target the Spanish speaking markets
Even though they have presence in major markets such as the United Kingdom, Canada, Germany and Australia since the summer of 2021, the bulk of Peloton´s business still comes from the United States.
In particular, revenue coming from North America (USA & Canada combined) was $3.738,9 M (93%) vs $283 M (7%) coming from the other international operations. The evolution of international revenues though has been fantastic with another strong performance percentage wise, and it probably will have an even better look if they manage to launch in Spanish speaking countries throughout the upcoming year.
Moreover, Precor not only should help them tackle the aforementioned supply chain challenges; it will make it easier to enter new markets given the brand´s presence across the globe, particularly in the hospitality segment.
Peloton´s competition: The "connected fitness" category queen faces pressure from all angles
In our newsletter and in the blog we have shared our innovation flywheel framework in which changes in technology drive shifts in consumer behavior and influx of resources into the market, mainly in the form of talent and investment.
The connected fitness market is certainly one of the categories where this framework has become very relevant and with this in mind, Peloton´s competition can be divided across several "buckets:"
Connected fitness brands: Competing on features, talent & content
2021 has certainly been the year in which new connected fitness brands have emerged "all over the place" and have been able to raise huge amounts of investment.
It is challenging to name all of them but there are several that stand out:
Tonal: The connected strength equipment was valued at $1.6 billion after its latest investment round in March 2021.
Ergatta: A connected rowing machine that was valued at $200 million after raising $30 million in April of 2021.
Hydrow, another connected rowing machine, seems to be targeting the possibility of an IPO through a SPAC.
Echelon fitness, who is backed by Goldman Sachs, is competing head on with Peloton in the connected bike space and even expects to achieve $200 million in revenues this year.
The biggest investment rounds of 2021 were the ones raised by Chinese brand Fiture ($300 million) and Tempo ($220 million).
Volava Fitness, considered the "Spanish Peloton," is also experiencing amazing growth. Its founder admits building the business after not being able to get a Peloton bike sent to Spain and, leveraging from the market dynamics and deals with retail giants like Amazon or Decathlon, it is quickly expanding across Europe.
The important thing to notice is that competition is not only based on product features. As Fitt Insider points out, they are also competing in "Media Content" and "Talent,"
and some of these brands like Tonal or Ergatta are building physical studios where they can take the quality of their content to another level.
Fitness gaming: The next frontier for the industry
We have already covered in the blog our belief that fitness gaming can very well be a dominant player in the future of the fitness industry.
One of the pioneering brands in the space is Zwift, a virtual indoor bike business, that has even been able to close deals with Le Tour de France or the IOC, two of the most important governing bodies in Sport. Moreover, Zwift is looking to expand within the realm of home fitness by launching new products into the markets including a new smart bike, a trainer and even a "state of the art" screen in partnership with LG.
Just like Peloton, Zwift´s biggest markets are the United States, UK, Germany and Australia, although they are able to have users across 190 countries because they are primarily a software company. Moreover, they are establishing an office in Spain, in an effort to target all Spanish speaking markets.
Another initiative that will look to disrupt the space is Staedium, by Freeletics, which will launch at some point during 2022 and that they define as a "game that makes you strong."
Again, these are just a couple of examples but industry experts seem to agree that fitness gaming is a great way to acquire non traditional fitness customers.
The "Big Technology" firms: Apple, Amazon, Meta and Google
Apple is being very aggressive in supporting Apple Fitness+ as Tim Cook truly believes it heath & wellness is one of the most important footprints that the brand can leave behind:
“I really believe that if you zoom out to the future and then look back and ask, ‘What has Apple’s greatest contribution been?’ it will be in the health and wellness area.” Tim Cook (CEO at Apple)
In fact, as pointed out in this episode of eMarketer´s podcast, Apple is rumored to be a potential buyer if at some point Peloton gets to be sold, although for the time being this does not seem to be the case.
Amazon was recruiting for a Head of Fitness not long ago and perhaps more importantly, they have better access to purchasing behavior than the others while Meta (previously Facebook) purchased VR Fitness business "Within" for a reported $400 million, although it still needs need to be given full approval for it. These big tech companies are competing both on product features and "engineering talent" as well, which promises to heat up the intensity in the short term.
In sum, if the 4 biggest tech brands in the world have made strong moves towards competing in the fitness industry, it must be because of the huge potential they see in it.
Fitness Apps: A projected 24% CAGR through 2030
The following report by Allied Market Research predicts that the fitness app market will be worth $120.37 million by 2030 (vs $13.78 billion in 2020).
Similarly, Statista projects an increase of 31% in global revenues of the digital fitness industry and of almost 86% in numbers of users between 2019 and 2024. This would set the penetration rate of users with an app and/or wearable at 13% worldwide.
These dynamics obviously drew the attention of investors all around; McKinsey shares that fitness-tech apps were able to raise $2 billion from investors.
Traditional fitness equipment manufacturers: Physical & Mental availability to recover lost ground
It may seem obvious that businesses like Technogym, Life Fitness or Nautilus will try to make a comeback and recover lost sales during 2020 & 2021. Technogym for instance, saw a decrease in revenues of 24% between 2019 & 2020 although initial expectations for 2021 were more positive. Part of their strategy is to leverage from new technology to build even better equipment, premium brand partnerships with brands like Dior, Ferrari, etc. and build amazing showrooms in premium retail locations.
We could argue that Technogym is ready to battle in terms of mental availability (brand) and physical availability (location) to win back part of the market that connected fitness brands like Peloton have taken.
Similarly, Nautilus recognizes that between 12% and 25% of customers will not return to the gym, which is why they have entered the digital subscription market and their goal for that vertical is to drive 20% of their total revenues by 2026.
Finally, the hospitality segment is an area in which fitness equipment suppliers will compete agressively, and this is where Precor can be a powerful asset for Peloton, given its wide portfolio of customers in the space at a global level.
Brick & Mortar gyms: Embracing new business models
Brick & Mortar gyms are testing out new business models in search of recovering lost ground. They have realized that the fitness experience of the future combines an omnichannel experience, where several initiatives stand out:
Equinox, who seems to be pursuing the opportunity for going public, launched their own connected fitness bike in 2020 and a digital subscription service to go along with it.
Life Time closed a partnership with Apple Fitness+ in which all its members would get free access to the digital service, in an effort to enhance the overall customer experience.
We believe this is a realm that promises great dynamism; we expect new business models, M&A operations, brand partnerships, and countless other initiatives that will try to help traditional gym brands recover from a rough era.
Other areas of competition: Lifestyle brands & Corporate Wellness
Throughout 2021 Peloton has further diversified its product portfolio, which automatically creates new competitors:
In June it launched its corporate wellness program, where it will compete with the likes of Gympass, Mindbody (who recenty purchased Classpass) and the rest similar businesses across the world.
In September, after testing the market through partnerships with Athleta or Adidas, it launched its own apparel collection and will look to increase ARPU from there as well. This though, has not prevented Peloton from renewing its partnership with Adidas, which helped them generate almost $28 million in 2020.
The question that lingers now is if too much diversification will lead to less focus, and average results across multiple categories vs outstanding performance in fewer segments.
Peloton´s sources of competitive advantages to win in 2022
Peloton has become the category queen of "connected fitness," and it has developed sources of competitive advantage across three pillars:
Brand: Peloton has clearly become a household name, particularly in the United States.
Customer experience: They work on new features, acquire new businesses and register patents. This is a lever though they need to monitor closely; their inability to cope with "scale" has greatly impacted their supply chain capacity, leading to customers complaints.
Talent: Their instructors are a key part of the business model and in some instances, their popularity is even greater than the Peloton brand itself.
We expect them to leverage from these pillars to try to win again in 2022, a year in which it seems that competition will only intensify and pressure from all angles will increase significantly. As always, we will share any relevant updates on Peloton´s business strategy through our blog, Linkedin page and The Ballketing Letter, so make sure you follow along.
And, if you need help researching the market dynamics impacting your sport business, and developing a robust strategy around them, feel free to get in touch and let´s work together to reach the next level.