Peloton Stock Analysis: Innovation Doesn’t Guarantee

Could peloton Finally deliver Profit?
Image source: freepik

Our Peloton stock analysis brings you another “innovation doesn’t always guarantee financial performance” episode.

In This Issue

To Be One Like Apple
We Started Peloton Stock Analysis by Analyzing Its Business Model

Peloton tries to mimic Apple’s success. That is, building a hardware-software ecosystem. A strategy that promises a delicious and thick profit margin. In Peloton’s case, the hardware is its “ordinary” bike. While the streaming workout program and a group of instructors (Yes, including Selena Samuela) serve as the software. Through this combination, Peloton tries to lock customers into its ecosystem.

Besides the ecosystem, Peloton also tries to get benefits from the community like Harley – not Quinn – Davidson. Hoping for the network effect built around the community could serve as a barrier for competitors. Peloton spread the spirit for the community: same fitness goal, same platform. It is not about the bike, it is something that connected people, one purpose.

During the pandemic and lockdown, when physical interaction becomes less and less intense, this message becomes stronger. As a part of the strategy of connecting people, Peloton sends a “Century Club” T-shirt once a member has completed 100 workouts.

We have to admit, we are impressed.

The Different Route

Instead of taking the razor blade strategy, Peloton takes the same route as Apple. For your information, the razor blade strategy sacrifices one product or service to boost the other. For instance, if Peloton takes this approach, it will sell the bike as cheap as possible but sell the streaming class a little pricier.

Or incorporate a free streaming program to boost its ordinary bike sales.

But no

Peloton sells both of them pricey.

Fit But Not Profit
Profitability is Main Issue in Peloton Stock Analysis

After getting an introduction about its business model, we are going to take a deeper look at its financial performance and business process as a whole.

Even with some issues about the manufacturing bottleneck, Peloton’s production cost doesn’t exceed the revenue (1,1 Billion). After being slashed by production cost, The fitness platform company run at 280 Million Gross Profit in the last quarter of 2021. The problem appears when selling the ordinary bike with more than a $1,000 price tag along with a subscription program.

In Q4 2021, Peloton spend almost 600 M in Marketing and Administrative, dragging the earnings into negative territory. This sky-high marketing number is the continuation of Peloton’s branding effort since 2019. Thus, we will focus on this.

Peloton, The Temple of God and Goddess

So, what does this 600 M bring for Peloton?

Near perfect branding.

As we said earlier, Peloton is pursuing Apple’s footprint to become a cult company. It creates the bike, set of workout programs, and make some instructors become fitness role models. Jess Sims, Aditi Shah, Rebecca Kennedy, Cody Rigsby are the god and the goddess.

Also, Peloton enters a partnership with Beyoncé to improve the one class with music that focuses on movement and wellness.

But still, it is not enough to lift the profitability.

From the potential investor’s point of view, there are two Peloton paths to generate positive earnings. The first is reducing the cost of marketing. After getting exposure and popularity, Peloton needs no introduction anymore. The second is, to make the sales – whether the bike or the subscription – exceed the marketing cost.

Calculation. How Much Marketing Need to Reduce to Deliver Profit?

For the sake of illustration, let us take the last quarter’s number. The gross profit margin is 280 M. To be breakeven, Peloton needs to shrink its marketing cost to half. But, in the absence of aggressive marketing, could Peloton maintain its sales level? Another option is to sell 25% more of the bike, which is, in our opinion, almost impossible. So, we see a dead-end at a glance.

Profitability Analysis is our main focus in Peloton Stock Analysis
Peloton find the way

Ride The Tide. Could It Last?
Business Advantage in Peloton Stock Analysis

The last section brings us to question the competitive advantage of Peloton. This is $1,495 for the bike with $39/month for the subscription. Let’s check how durable its competitive advantage?

Intangible Asset

The power of Peloton is its branding – more features, cool digital stuff, and a nice ecosystem, but that’s it. It has no legal barrier like a patent that can prevent competitors create a similar product or service. Moreover, the branding isn’t strong enough to guarantee growth in the upcoming years. With the heating competition, it is difficult for Peloton to sell this pricey bike. We don’t see a durable economic moat here.

Switching Cost

Also, Peloton has no switching cost to guard its market share. A Peloton user could switch to the gym or other platform once pandemics fade. A platform like Herria apps or Athleanx fitness program has the best value, minus the community.

Having an instructor with a goddess-like body is cool, having a digital screen on the bike is super cool, but the price tag? the subscription program? It is not high enough to provide a barrier for users to switch to other services or platforms.

Other Advantage

Peloton also has no scale or network advantage.

Investor Corner, Low Barrier to Entry, Back to Science.

We can’t see how the company faces competition, not only from a similar platform or the gym, or from the Youtuber program. I’m not gonna lie, Jeff Cavaliere has so many free programs.

Moreover, the bike is a piece of cardiovascular exercise equipment. Sorry, to get fitness, get rid of your fat, cardiovascular exercise doesn’t solve the main problem. Cardio helps endurance, reduces blood pressure. But when come to fat loss, the impact will be minuscule.

Peloton offers a lifestyle, not muscle in your back.

Similarity With Apple. How Far
Peloton Stock Analysis by Looking Its Philosophy.

Because Apple has become our benchmark, our question should be: How far is Peloton has similar to Apple, the most valuable company?

One of the most misunderstandings about Apple is that the Cupertino product is way overpriced.


Apple Bionic processor for smartphones is a monster. Apple M1, M2 processor for laptop is beast. Apple iOS, iPadOS, MacOS are superb. Apple ecosystem built within superior hardware and software. Moreover, Apple miraculously could lock customers into its ecosystem through this excellence. Not to mention Apple’s strong connection with developers, something that Android doesn’t have.

And the most difference is, Apple makes a profit without too much advertising or marketing.

Peloton doesn’t have that characteristic. Only branding effort that makes us impressed.

App Doesn’t Guarantee Disruption
Peloton Stock Analysis Conclusion

So, here is our conclusion:

  1. Peloton’s branding effort really makes it, but it’s not enough to generate profit.
  2. The business model or philosophy is similar to Lululemon, that is, selling community, ecosystem, and apparel. Also, it spread the cult.
  3. Peloton once again shows us that making something into an app doesn’t guarantee profit. Turning bicycling to apps doesn’t guarantee success. Peloton adds the list that disruption does not always end happily. try to reach
  4. Apple’s unique business model really inspiring, but we have to agree that replicating that idea is extremely difficult. To remind you, Apple masters both hardware and software, no company has that excellence. Moreover, it has also an effective marketing and distribution channel.