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Analysts Expect Peloton to Crush Earnings. That’s a Test of Zoom-Like Proportions

As we get closer to management’s plans for revving up Fitbit, Canaccord Genuity analyst Michael Walkley initiates coverage of Peloton with a $60 price target. While he’s sure Fitbit will be a revenue powerhouse in the future, currently, and from all the reasons Walkley puts forward in his report, it seems like Peloton is a much bigger opportunity than Fitbit. But since expectations are so high, I wonder if it might be tougher to meet the newly raised target.

According to Walkley, the service needs to roll out into significant metropolitan markets first, ideally one city at a time to foster growth before it can aggressively expand to other top-grossing markets. Peloton itself, therefore, plans to focus on San Francisco, New York, and L.A. starting with its Tier One market.

“Most investors are assuming that Peloton will be able to finance the rollout within its current channel. As I have alluded to, I’m not so sure,” says Walkley. “We are only just now getting meaningful indications that the company has sold out, which, given demand was reportedly so high prior to shipments, shows that these were not limited to collectors.”

Between its adjustable band, adjustable desktop bike, and cool operating and privacy tech, Peloton is a popular ride-sharing-for-tennis-players app. It not only allows you to download 360 degree videos of your fitness ride to watch later (much like Cyclebase’s T-Gear products), but it also provides pricing advice, membership rates, discounts and more.

With that being said, I was speaking with a marketing executive (no relation) at Peloton, who could not disclose what these discounted membership rates are. Regardless, it would be smart to promote a discount via email and sign up for updates through Peloton’s social networks, in addition to wearing a subscription.

The lack of data is indicative of these kind of partnerships. A few customers might be downloading the app, but as far as I can tell, they’re mainly getting a workout-oriented app. There’s no need to keep up with Peloton’s analytics or operations, since the target is to encourage you to stay tuned to what your fitness route is before hitting the road.

Yet based on the numbers, it’s difficult to see why I’d agree with analysts that it will be difficult for Fitbit to beat the company’s sales by a significant margin. While my source could not reveal anything, the first model I saw in the workout space was $200, plus fees, and the price drops to $99 for using the app on your own stationary bike. That’s probably a conservative estimate when thinking about what people will pay to use Peloton. But even if it only takes $200, and it seems Fitbit could grow to two-times the size of Peloton’s top line, what’s the ceiling between the two of them?

If you’re going to make half of the revenue, you should still be able to grow to a significant piece of the pie — and therefore margins — making your product competitive.

I’ll let you know if Fitbit matches my expectations of quarterly and annual growth rates and the level of profits it earns per app downloaded. Right now, Peloton’s price target is $60, with a 1.3x price/sales ratio, while Fitbit’s price target is $9, with a 3.2x price/sales ratio.

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