What the Reopening of Gyms Means for Peloton, Planet Fitness
Photo Credit: Peloton press kit
Gyms across the country are beginning to reopen as states start to give Americans the green light to leave their homes. One question investors are asking is whether Peloton can sustain its growth while stay-at-home orders loosen up. Engagement trends offer a positive sign that current subscribers will continue their subscriptions.
Peloton engagement stats: 17.7 monthly workouts per sub, up from 12.6 last quarter and 13.9 last year; churn of 0.46% was at its lowest level ever for the company.
The Hype for Peloton: Shares are up nearly 60% year-to-date as consumers rush to purchase the at-home bike.
Connected Subscribers: Peloton announced in an 8-K filing that it had topped 1 million Connected Fitness Subscribers, adding 114k since the end of F3Q20.
Investment in supply capacity: Peloton is building a new manufacturing facility to address a spike in demand and the resulting elongated delivery times. Canaccord Genuity expects the investment to benefit subscriber growth in the second half of the fiscal year.
Peloton PT Hike: SunTrust Robinson Humphrey raised its price target on Peloton to $60 from $52 on Tuesday, May 19.
"We remain constructive as PTON continues to be a net beneficiary of greater adoption of in-home fitness, caused by the pandemic," said analyst Youssef Squali.
The firm expects about 214K quarterly connected fitness subscriber net adds in F4Q20, bringing the quarterly total to 1.1 million (compared to Peloton’s guidance of 1.04 million to 1.05 million in the quarter.)
Gym Stock to Watch: One of the gyms welcoming back some of its members is Planet Fitness. The company’ CEO said it experienced a “slight cancellation bump” in membership, but May has been as “normal as a normal May would be.” Jefferies believes the fitness chain is set up for long-term success.
Traffic rebound: Traffic has returned to 25% of normal (benchmarked to a daily average in January 2020), according to SafeGraph data analyzed by Jefferies.
Wedbush expects 35% of Planet Fitness locations to reopen in the near-term.
Stable revenue stream: “Automatic drafts and recurring revenues are a positive. With over 14M members and 2,000 clubs, PLNT will benefit from its automatic draft fees and recurring revenues as clubs reopen.”- Jefferies analyst Randy Konik.
Recession impact: A gradual reopening of the economy does not guarantee a return to pre-COVID-19 levels of employment, and the boost driven by the stimulus checks will not be able to support consumer spending indefinitely. Jefferies believes “recessionary economic conditions as a result of COVID-19 are likely to cause consumers to trade down from higher-priced options to PLNT memberships given the company's strong value proposition.”
Jefferies has a $80 price target and BUY rating for PLNT.
Big Picture: Consumer spending shifts and consumers’ willingness to reenter shared public spaces once states reopen remain to be seen. As more states relax stay-at-home orders, investors will get a clearer picture of how sustainable Peloton’s COVID-19 bump is, and whether Planet Fitness can bring its members back through its doors.
