When Peloton (NASDAQ: PTON) reported its fiscal 2022 third-quarter financials (ended March 31) on May 10, unsurprisingly, investors were immediately disappointed with a 23.6% revenue decline and a net loss of $757 million. Struggling to regain solid footing amid softer demand is proving to be a major challenge.
This once-booming fitness stock, down 84% over the past 12 months, has certainly seen better days. But Barry McCarthy, the new CEO, has set his sights on an audacious goal. He believes Peloton can one day amass 100 million members.
Continue reading to find out why this could happen and why it couldn't.
A long road ahead
Peloton currently has 2.96 million connected-fitness subscribers (those who purchased a piece of equipment and pay a monthly fee) and 976,000 digital-only subscribers (those who pay monthly for access to the fitness app). But because there can be multiple user profiles on a single subscription, today Peloton counts 7 million total members on its platform.
Reaching 100 million members would be a more than 14-fold rise from where the business is today. That massive scale equates to roughly half of the 200 million or so gym memberships worldwide.
"It's a long, long way from where we sit today," McCarthy wrote in the shareholder letter. "But we sit at the epicenter of technology-enabled fitness, a long-term secular growth trend."
It's possible to reach this milestone because Peloton has a fantastic user experience. Customers rave about the company's exercise equipment. The flagship Bike, Peloton's first product, has a 4.8 star (out of five) average rating out of nearly 20,000 total reviews.
Introducing new products, like the Peloton Guide or the upcoming Peloton Rower, will definitely help drive interest. And constantly adding exciting new workout content, as well as penetrating different markets, can expand Peloton's opportunity.
It won't be easy
However, the road to 100 million members will certainly not be easy, and I'm sure many investors are skeptical about McCarthy's target. With economies reopening, brick-and-mortar gyms like Life Time Fitness and Planet Fitness are back to posting huge growth. Peloton's popularity could frankly prove to be a fad, joining the long list of fitness crazes that came and went, with consumers opting to return to the traditional gym experience.
Additionally, Peloton has a host of direct competitors, all offering expensive home-exercise equipment. Hydrow, Tonal, and Lululemon's Mirror are high-end options. Plus, there are many ways people can access workout videos. Apple's Fitness+ is a formidable opponent to Peloton's digital-only subscription.
Then we have to consider Peloton's financial situation. The business is undergoing a major restructuring in order to lower its annual expenses, as well as raising capital to shore up its cash position. What happens to Peloton in a recession? If management can't strengthen the balance sheet, the company might not survive long enough to have a chance at 100 million members.
Shareholders should no doubt appreciate Barry McCarthy's optimism. Time will tell if Peloton is able to reach that aspirational milestone. The stock price would likely be significantly higher with 100 million members.
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Neil Patel has positions in Apple, Lululemon Athletica, and Peloton Interactive. The Motley Fool has positions in and recommends Apple, Lululemon Athletica, Peloton Interactive, and Planet Fitness. The Motley Fool recommends the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.
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