The fitness industry has experienced tremendous growth in the last ten years and according to a PolicyAdvice article from earlier this year, the global gym industry was was worth $96.7 billion in 2020.
Using the TipRanks Stock Comparison tool, let us compare two fitness companies, Peloton Interactive and Planet Fitness, and see how Wall Street analysts feel about these stocks.
Peloton Interactive (PTON)
Peloton Interactive has been a disruptor in the fitness industry with a subscription platform that is equipped with proprietary network software and streams digital wellness and fitness content. The company generates most of its revenues through the sale of its connected fitness products including Bike+, Peloton Bike, Tread+, and the Peloton Tread, and recurring subscription revenue associated with these products.
Earlier this month, Peloton announced its fiscal third-quarter results where revenues jumped 141% year-over-year to $1.26 billion. However, the company reported a loss of $0.03 per share that narrowed from a loss of $0.2 per share in the same quarter last year.
Peloton’s paid Digital Subscriptions surged by a hefty 404% to around 891,000 in Q3, while Connected Fitness Subscriptions jumped 135% to over 2.08 million.
In the fiscal fourth quarter, Peloton expects the recall of its Tread and Tread+ treadmills to cost the company $165 million. The company initiated a recall of these treadmills after a U.S. Consumer Product Safety Commission’s (CPSC) report claimed the Tread+ was unsafe following 39 injury incidents involving the product in addition to one child’s death.
The recall of Tread and Tread+ is also likely to impact the company’s subscription revenues by $10 million in fiscal Q4 as Peloton is waiving monthly subscription access fees for both Tread and Tread+ members for three months.
Peloton anticipates revenues of $915 million in Q4 and $4 billion in FY21. This revenue forecast for FY21 includes $60 million of Precor revenues. In April this year, the company completed the acquisition of Precor, a fitness equipment company for $420 million in cash.
The company expects Bike and Bike+ sales in Q4 to be three times its sales in Q4 FY19 and anticipates the growth of its Bike portfolio to continue in FY22.
Peloton’s international business is growing at a faster pace than in the United States. The company is ramping up its marketing activity spend and word-of-mouth publicity is contributing to rising memberships.
Due to these factors, in FY21, the company expects connected fitness subscriptions to be worth $2.275 million. Over the long term, Peloton anticipates that the subscription contribution margin will exceed 70%.
The company has also announced plans to set up its first U.S. factory in Ohio’s Troy Township for $400 million. This production facility will be called Peloton Output Park and will produce Peloton’s bike and tread products. Construction of the facility will start this summer, while production is expected to begin in 2023.
While it builds its own manufacturing plant in the U.S., Peloton plans to continue using its contract factories in Asia. (See Peloton Interactive stock analysis on TipRanks)
Peloton CEO John Foley said about the factory, “The new Peloton Output Park gives us a massive strategic lever to make sure we have capacity, quality, and economies of scale in our bike and tread product lines, to support our continued growth for years.”
The company is also looking at beginning limited production of its products at Precor’s facility in North Carolina by the end of this year and aims to ramp up production next year.
On May 24, UBS analyst Eric Sheridan reiterated a Sell and a price target of $74 on the stock. The analyst stated that data from the UBS Evidence Lab indicated that adoption of the Peloton Digital app fell 3% to 4% year-over-year in April and by one more percentage point in May.
Sheridan commented on the data in a note to investors, “We believe these data points can be a useful proxy for overall adoption trends of Peloton both in the U.S. and internationally, as well as the competitive landscape for other fitness and wellness offerings. Peloton views its digital app as a primary lead generation channel that has also been growing the fastest among other channels.”
Consensus among analysts on Wall Street is a Moderate Buy based on 18 Buys, 4 Holds, and 1 Sell. The average analyst price target of $131.19 implies 19.7% upside potential to current levels.
Planet Fitness (PLNT)
Planet Fitness is a fitness brand whose business model differs from Peloton. The company generates revenues through a franchising business, corporate-owned brick-and-mortar stores, and the sale of its fitness equipment. Currently, the franchising business operates in the United States, Puerto Rico, Canada, Mexico, Australia, and Panama.
However, the company is also exploring a digital subscription strategy and offers a digital subscription plan, PF+, priced at $5.99 per month. The company stated at its earnings call that more than 30% of its digital subscription members joined Planet Fitness gyms after subscribing, while 65% of PF+ members had visited its bricks-and-mortar gyms since subscribing.
Planet Fitness is planning to do a test run of PF+ for price elasticity in a limited number of gyms this year where it will bundle classic and black card memberships with a PF+ subscription. It expects to share “more possible offerings in early 2022”.
Planet Fitness’ CEO, Chris Rondeau said at its earnings call, “I believe that the future of the fitness industry is truly about bricks with clicks, the powerful combination of providing people with a high-quality in-person fitness experience, coupled with the ability to engage and service them outside our four walls with differentiated premium content wherever they are.”
To extend its digital strategy, the company acquired a minority stake in iFIT earlier this month. iFit is a developer of interactive software and content and a seller of fitness equipment.
The company’s gyms are typically 20,000 square feet and a standard membership is priced at $10 per month. As of March 31, the company had 14.1 million members with memberships growing sequentially in every month of Q1 as restrictions were lifted and more people got vaccinated. The company had 2,146 stores at the end of Q1 of which 2,043 are franchised stores while 103 are owned by corporates.
Earlier this month, PLNT announced first-quarter results where total revenues declined 12.1% year-over-year to $111.9 million and the company reported diluted earnings of $0.07 per share versus $0.11 in the same quarter last year.
The company refrained from providing an outlook for FY21 as a result of the uncertainty due to the COVID-19 pandemic. (See Planet Fitness stock analysis on TipRanks)
Earlier this month, following the company’s earnings, Berenberg Bank analyst Alex Maroccia reiterated a Hold rating and lowered the price target from $91 to $78 on the stock. Maroccia said in a research note to investors, “The company reported a mixed set of results yesterday, seeing an uptick in the overall membership base for the first time since Q1 2020 but experiencing continued difficulties in equipment replacements and new placements.”
“On a positive note, at the time of earnings, the company announced a new partnership with and investment in digital fitness brand iFIT, which we believe can drive meaningful “omnichannel” revenues in the future. Despite this positive long-run growth driver, we struggle to see upside in the company’s current valuation,” Maroccia added.
Consensus among analysts on Wall Street is a Moderate Buy based on 2 Buys and 5 Holds. The average analyst price target of $87.83 implies 9.5% upside potential to current levels.
Bottom Line
Peloton Interactive has proven to be a disruptor in the fitness industry and has been a pioneer in the fitness content streaming space. The combination of its digital subscription business with its connected fitness products has made it a global leader in the health and fitness space.
Meanwhile, Planet Fitness is also exploring the opportunity to merge its bricks-and-mortar business with its digital app by combining its digital PF+ subscriptions with memberships to its gyms.
While Wall Street analysts are cautiously optimistic about both stocks, based on the upside potential over the next 12 months, PTON appears to be a better buy.
