Is Mirror the Next Peloton? Not so Fast
Lululemon thinks it found the next Peloton, expanding into fitness technology with its $500 million acquisition of Mirror, an at-home fitness subscription company.
Mirror, Mirror: If you haven’t heard of Mirror, or don’t recognize the product from its NYC subway ads, you are not alone. In a call addressing the acquisition, LULU management noted that only 10% of consumers were familiar with the product. Mirror sells a $1,495 reflective display that streams over 40 different fitness routines including lifting, boxing, yoga, and meditation.
3 reasons the deal makes sense:
Overlap: 50% of Mirror customers are LULU customers. With a similar target market, Lululemon can leverage a number of synergies and utilize MIRROR to strengthen marketing and customer engagement.
WOAH Trend: LULU is making a bet on the workout-at-home trend that has been accelerated by Peloton. Management shared that pre-COVID, 64% of their guests utilized an at-home digital workout option & 75% of guests are now utilizing at-home digital workouts. Post COVID, 86% of their guests expect to workout at home at least as much as pre-COVID.
Recurring revenue: Lulu is adding a recurring subscription revenue stream of $39 per subscriber, with the potential for users to spend more on personal trainers.
The next Peloton? Not so fast: Mirror is not in the same league as Peloton, at least not yet. Mirror, which is on track to generate $100 million of sales in 2020, is much smaller than Peloton in terms of revenue. For comparison, Peloton has earned over $1.4 billion in the last year. For this reason, Jefferies analyst Randy Konik believes “MIRROR is unlikely to be a near-term needle mover for LULU's $4B business.”
Subscribers: B Riley FBR analyst Susan Anderson estimates that there will be about 60,000-80,000 subscribers by the end of fiscal year 2020, whereas Peloton has already surpassed 1 million.
Exercising caution: Konik says the deal is “Not a game changer for us” and stressed that “Mirror is being purchased at the peak of the at-home fitness mania.” Additionally, Konik does not think the current COVID-19 environment is ideal for such a deal. Lululemon used over half the cash on its balance sheet as of 1Q to pull it off.
