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Motorcycles How Peloton Is About to Suck the Air Out of the Interactive Home Fitness Industry

13:26  26 september  2020
13:26  26 september  2020 Source:   fool.com

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Peloton Interactive (NASDAQ:PTON) is making big moves that are likely to significantly change the interactive home fitness industry . By offering much lower price points for its popular bikes and treadmills, the company is making it more affordable to join the Peloton ecosystem.

Peloton Interactive Inc. sells exercise machines and fitness classes, no matter what its IPO filing may want you to believe. Peloton has sold more than half a million in- home stationary bikes and treadmills that connect to streaming fitness classes.

Peloton Interactive (NASDAQ: PTON) is making big moves that are likely to significantly change the interactive home fitness industry. By offering much lower price points for its popular bikes and treadmills, the company is making it more affordable to join the Peloton ecosystem. That's making life difficult for its smaller competitors.

a person sitting at a desk in a room: How Peloton Is About to Suck the Air Out of the Interactive Home Fitness Industry © Provided by The Motley Fool How Peloton Is About to Suck the Air Out of the Interactive Home Fitness Industry

But there's an even more dramatic move to yet to be announced.

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Fitness companies like Equinox and SoulCycle knew the threat from remote workouts like Peloton bikes were real; they didn't know how fast it would come due to Covid-19. Pre-Covid-19 plans had included a phased rollout of the app, but the unscheduled studio closures heightened client interest in

How Peloton exercise bikes became a billion fitness start-up with a cult following. Published Tue, Feb 12 20199:07 AM ESTUpdated Tue, Feb 12 "I never found time to work out consistently before, and between the community and the total availability of the classes — I mean, it is nothing for me to

Bike+ and Tread introduction

On Sept. 8, Peloton introduced a new, more expensive Bike+ and dropped the price of the existing Bike by $350 to $1,895. At the same time, it announced a new, less expensive Tread and renamed the existing, more expensive treadmill the Tread+.

Peloton's management has been telegraphing this strategy of bringing down the price points of its hardware, thereby making entry into the Peloton ecosystem more affordable. On the company's fiscal fourth-quarter conference call, founder and CEO John Foley said, "It has long been our goal to democratize access to fitness. And lowering the price of our bike, along with the introduction of our lower-priced Peloton Tread, are important steps to achieving this goal."

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Peloton is a bike with a tablet that lets you join fitness classes from wherever you are. It is not exercising at home , with all of the lack of inspiration or peer-pressure that entails; nor is it Your bike will tell you what resistance you're on and how fast you're pedalling – the instructor reads out the

The digital fitness industry strengthens its muscle. “There are 162 million people with gym memberships globally who could have a superior experience at a better value from the comfort of their homes ,” says Peloton CEO John Foley, whose company first delivered equipment with streaming

a person sitting at a desk in a room: A woman rides her Peloton bike in her bedroom near a bed and a dresser © Peloton Interactive A woman rides her Peloton bike in her bedroom near a bed and a dresser

As a result, Peloton will shortly have its "better/best" strategy with the Bike and Bike+ costing $1,895 and $2,495, respectively, and the Tread and Tread+ costing $2,495 and $4,295, respectively. This provides consumers with multiple price points, increasing the pool of potential buyers.

That said, the majority of Peloton's customers finance their purchase with low monthly payments over 39 months at 0% interest. For example, the original Bike can be purchased for only $49 per month for 39 months. That makes Peloton much more affordable than the headline prices suggest.

Bike Upgrade program

Given the new higher-end Bike+, Peloton anticipated that some percentage of its Bike owners would want to upgrade. So it developed a program where Bike owners in the U.S. can trade in the Bike for a $700 credit toward their purchase of the Bike+.

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  Everything You Need To Know About the New Peloton Bike+ and Peloton Tread Here's what to consider before you buy.However, the pandemic forced the closures of most gyms and studios, and kept people largely at home for months. Because of this, many people are finally clicking "add to cart" on home gym items they've been eying for a while—including big ticket items like cardio machines. And Peloton finally has some hefty competition, from SoulCycle's new at-home bike to StrydeBike (which launched during the pandemic) as well as a variety of other less flashy but more affordable treadmills and spin bikes.

Peloton Interactive Inc., whose at- home bikes replicate a boutique fitness studio environment, is suing Flywheel Sports Inc. for allegedly stealing [R]ather than innovating and investing, as Peloton had, Flywheel infringed the Peloton Patents by creating a copycat of the Peloton Bike experience

Peloton is the largest interactive fitness platform in the world with a loyal community of over 1.4 million Members. We make fitness entertaining, approachable, effective, and convenient, while fostering social connections that encourage our Members to be the best versions of themselves.

This benefits Bike owners who want to upgrade by giving them an easy way to seamlessly do so without having to find a buyer on the secondary market. It also benefits Peloton by driving more sales of the higher-end Bike+. And the company's bikes have a healthy gross profit margin above 40%.

Refurbished Bike program

But the really big deal that seems underappreciated among investors is this sets the company up to sell even cheaper refurbished or "Certified Pre-Owned (CPO)" Bikes pretty soon. On the fourth-quarter conference call, Foley said, "And then as you noted, we do have plans to offer a CPO program."

These CPO Bikes are going to be even cheaper than the Bike, which was just reduced $350 to $1,895. While nothing official has been announced, it wouldn't be surprising if the CPO Bike costs in the $1,200 to $1,400 range.

That's a really big deal because the lowest cost of entry into the Peloton ecosystem would go from $2,245 -- the original price of the Bike -- all the way down to perhaps $1,200 in only a matter of months. And if Peloton offers the same 39-month financing offer, the CPO Bike might be available for as little as $31 per month for 39 months. That's affordable for almost anyone who values fitness.

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Fitness product purveyor Peloton did all it could in its latest quarter to justify the 30% surge in its share price But I think people's interest in working out at home and avoiding the gym has increased and has Here is how Peloton performed compared to Wall Street estimates and the fiscal third quarter.

Peloton is suspending its live video classes for the rest of April after an employee tested positive for the novel coronavirus. Chat with us in Facebook Messenger. Find out what's happening in the world as it unfolds. Here's how the fitness industry is going virtual.

This is key because the biggest barrier to purchasing a Peloton is the price. As management drops the up-front hardware prices lower, more consumers are going to consider and buy a Peloton, thus becoming highly profitable recurring subscription customers.

These price reductions are likely to suck the air out of the industry. Competitors selling inferior products are going to have an even harder time finding customers when Peloton, which dominates the segment, is priced similarly or even cheaper. Those competitors may have to reduce their prices or risk seeing their sales fall even further.

But reducing their prices is only going to make it even harder for them to compete because doing so only hinders their ability to reinvest in content and research and development (R&D), which is the fuel that could improve their offering. In the meantime, Peloton is "doubling its investment in product R&D" this year, according to Peloton President William Lynch.

That's the kind of competitive strategy that could lead to winner-take-all dynamics. Investors should be paying more attention.

Andrew Tseng owns shares of Peloton Interactive. The Motley Fool owns shares of and recommends Peloton Interactive. The Motley Fool has a disclosure policy.

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