The business of fitness and wellness.

Our Notes on Peloton’s S-1

After months of speculation, Peloton—makers of connected fitness equipment and on-demand classes—made its intentions to go public official by filing an S-1 with the SEC.

S-who? This prospectus contains relevant business and financial data offering potential investors, and anyone interested in reading the 145-page document, insights into the company’s goings-on. Given the opportunity, and with the goal of extracting the most telling insights, we read the entire filing so you wouldn’t have to.

>> Read our full analysis here.

TL;DR
Peloton’s S-1 pulls back the curtain on the company’s fast-growing hardware + subscription business. The punchline: Despite soaring losses and skyrocketing marketing costs, Peloton’s sales, margins, and cult status make a compelling argument for the company’s potential.

Bull position: Peloton’s hardware margins are better than Apple’s iPhone. Their content subscription generates SaaS-style recurring revenue. And the company’s obsessive userbase will propel the brand forward.

Bear position: Peloton, like most fitness regimens, is a fad. The bike/brand has become a status symbol for affluent consumers who are already inclined to exercise. Over time, competitors will gain ground, people will quit, and sales will stall.

By the Numbers

Revenue: $915M for 2019, up 110% from $435M in 2018
Members: 1.4M total members — defined as anyone with a Peloton account
Subscribers: 511K “Connected Fitness Subscribers”
Hardware: 577K bikes + treadmills sold
Participation: 58M completed workouts in ‘19, subscribers average 11.5 rides/month
Churn: .7% “Average Net Monthly Connected Fitness Churn”
Retention: 95% retention rate over the first 12 months

What we Highlighted

>> Sweat and smile. Peloton’s co-founder and CEO John Foley has an expansive vision for the company, writing: “On the most basic level, Peloton sells happiness.”

>> Reading between the margins. Peloton’s gross margins on hardware and software each sit around 43%. The company was praised for better hardware margins than Apple, but criticized for a higher-than-expected content production spend.

>> Risky business. Among other things, Peloton cites third-party music licensing and the need to attract and retain high-quality instructors as potential challenges ahead.

>> Room for growth. According to Peloton, their fastest-growing demographic segments are “consumers under 35 years old and those with household incomes under $75,000." The company has also expanded beyond the US into Canada, the UK, and as of late-2019, Germany.

The Takeaway
Having amassed 500K subscribers and nearly $1B in revenue, Peloton has validated the connected fitness market and established an “Engaging-to-the-Point-of-Addictive Fitness Experience” that’s well-positioned for a debut on the public market. In the meantime, expect a growing list of competitors to give chase as onlookers wait to see 1.) how Peloton is received by the markets and 2.) if connected fitness proves to be a fad or the future.

Headlines & Happenings

🙈 WeFly

No, WeWork isn’t buying an airline — though, we wouldn’t put it past them. In this case, “WeFly” refers to a report from Bloomberg that suggests the coworking startup may have inquired about purchasing all or part of Flywheel’s business.

Who’s asking? That would be Peloton.

For context: As Peloton prepares to go public and Flywheel tries to stay in business, the two companies remain locked in an escalating legal battle — Peloton has accused Flywheel of patent infringement for copying its connected bike technology. Now, Peloton is demanding to know if 1.) Flywheel and WeWork were in talks about a potential sale and 2.) if WeWork held third-party talks involving the Flywheel vs. Peloton lawsuit.

Representatives from all three companies declined to comment, but the report raised some interesting questions — mainly: does WeWork have aspirations to enter the connected fitness space?

Zooming out: The company has already made its foray into fitness and wellness with Rise By We, its take on an Equinox-style health club. But making a play for Flywheel’s at-home bike and/or studio business would thrust WeWork into the connected fitness arms race while signaling to Equinox and luxury health club Life Time that the co-working company is serious about wellness real estate.

💊 Low T

By focusing on personalization, transparency, and convenience, direct-to-consumer startups are disrupting the trillion-dollar healthcare industry. From vitamins to fertility tests and even ED pills, you name the product and there’s a company that will ship it to your door.

Next up: direct-to-consumer testosterone could be a billion-dollar opportunity.

One study found a fourfold increase in the rate of testosterone use among 18–45-year-old men between 2003 and 2013.
The same study said prescriptions for testosterone have risen 300% since 2001.

As men age, their testosterone can drop 1–2% per year after age 30, leading to depression, muscle loss, weight gain, and low libido, among other things. Over time, the wellness industry has introduced a variety of (unproven) “low T” supplements, including multi-vitamins, DHEA, deer antler, pollen, and more. But now, prescription testosterone or testosterone replacement therapy (TRT) is emerging as the go-to option.

DTC TRT: As companies like hims and Roman have shown us, playing to our insecurities while also removing the stigma associated with those shortcomings is a formula for success. In the case of low testosterone, creating a direct-to-consumer TRT offering could be an add-on for an existing company or the foundation of a new healthcare startup.

Through a combination of bloodwork and remote consultations with a doctor, it’s not hard to imagine a mail-order TRT service complete with a one-time onboarding (bloodwork) fee, monthly subscription, and upsell opportunities to multivitamins, ED pills, fertility tests, hair loss treatment, and more.

📆 Mark Your Calendar

In each week’s newsletter, we set out to provide the most impactful news and analysis for entrepreneurs, executives, and investors in the fitness and wellness space. This week, we’re excited to share an event designed specifically for the leaders and decision-makers across the industry.

Need to know: Announcing the Fitness & Active Brands Summit: a two-day event devoted to the innovations, investments, and opportunities developing in fitness and wellness.

Taking place in Los Angeles on December 4-5, 2019, the Fitness & Active Brands Summit offers panel discussions, private meetings, and keynotes from industry experts. >> See the full agenda
From Barry’s Bootcamp and ClassPass to Xponential Fitness, [solidcore], and Gympass, plus North Castle Partners and L Catterton, the speaker’s list is a who’s who of investors, founders, and executives. >> See the full list of speakers
As the media partner of the Fitness & Active Brands Summit, we secured 10% off for Fitt Insider readers — simply use KR10 at checkout. >> Register here

📰 What We're REading

Companies like Peloton won’t make us any healthier.
KFC x Beyond Meat plant-based fried chicken sold out immediately.
Sweetgreen’s new menu item is for your dog.
Ritual plans to introduce a new multivitamin for the 50+ demo.
Too busy to read every issue of Fitt Insider? Try the monthly recap.

💰 Money Moves

ONE Brands was acquired by The Hershey Company for $397M.

Mumbai, India-based Fitternity, a fitness discovery and booking platform, has added an additional $1M to its Series A round, bringing the total amount raised to $5M.

New Zealand-based gut-friendly milk producer a2 Milk announced total revenue of $1.3B ($NZ), a 41.4% increase from last year (ending June 31). The company also revealed $23.2M in net US sales, a 160% increase over the same period.

Equinox revealed a £6.1M pre-tax loss in the UK for 2018, a sharp drop from profits of £242K in 2017. The loss comes on the heels of reported investment costs as the luxury fitness brand prepares to open two new London locations.

Juvenescense, a British Virgin Islands-based life science company using AI-powered therapeutics to combat age-related diseases and bolster human longevity, raised $100M in Series B funding led by Grok Ventures and IPGL, Michael Spencer’s investment company.

More from Fitt Insider >> Forever Young: The Anti-Aging Startups in Pursuit of Permanence

PURIS, a Minneapolis, Minnesota-based pea protein producer and Beyond Meat supplier, raised a $75M investment from Cargill, one of North America’s largest beef processing companies.

More from Fitt Insider >> The Future is Plant-Based

London-based upstart fitness booking app, Fitu, raised £370K during one month of crowdfunding, surpassing its goal of £250K.

Cirqle Biomedical, a Copenhagen, Denmark-based biotech company, raised $1.8M in pre-seed funding to develop next generation, non-hormonal contraceptives. The round was led by BioInnovation Institute (BII) and Rhia Ventures.

Love Wellness, a sexual wellness and ingestibles brand, raised $4M in Series A funding led by PDC Beauty & Wellness Co.

Figur8, a healthtech startup out of MIT’s Media Lab making movement sensing equipment for soft tissue-related symptoms, raised $7.5M in seed funding from P5 Health Ventures and MIT fund E14.

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