TLDR
Peloton is a targeted niche fitness business for the affluent and will take a hit on their revenue top line, due to multiple limiting factors of its business model.
- Market Cap: $34 billion
- 2020 revenues: $1.8 Billion
- 2020 Sales Multiple of : 18x
- Outstanding Shares: 263.64 million
- Stock Price: $108
- Estimated Subscription: 1.09 Million Subscriptions
Beachbody is targeted for ALL demographics, it is predominantly a fitness Saas, nutritional supplements and has Myxfitness( connected fitness product spin bike) to compete with peloton at an affordable price target.
- Market Cap: $4 Billion
- 2020 revenues: $880 Million
- 2020 Sales multiple of: 4.5x
- Outstanding Shares: 342.5 Million
- Stock Price: $9.90
- Estimated Subscription: 2.6 Million Subscriptions
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By a Fundamental quantitative standpoint.. Peloton is overvalued and The Beachbody Company is undervalued..lol no one can argue this. I’m sorry and I am not a bear on Peloton, I promise.
I’m Holding 1600 shares of FRX , looking to add more.
By no means, am I implying or suggesting that Beachbody Company is a Peloton Killer, don't get it twisted. Read below to understand, where I'm coming from. I'm putting this out to the internet as I believe Peleton recent success in price action will deliver close to the same results for The Beachbody Company. I’m doing this because I want you smart folks to poke holes at my thesis.
Model based of 2021/2022 Revenues
FYI
I'm aware of what's going on with Peloton. I planned on creating this DD last week. So what happened with those pets/kids is a short term negativity event, growth pains if you will (think of Tesla negative press on autopilot death). Also I don't think adding a treadmill to their product line was a deviation of the Peloton brand, since they are trying to scale. This is evidence that they are trying to scale. One of the reasons why the market has a high evaluation now is because they believe they will add more products to bring in new levels of revenue. As you know, new products will help increase revenue by squeezing money from their current members and attract new affluent members, who don't like cycling or seated routines. Now there will be a cap on bikes/treadmills sales at some point in the near future, thus they will start depending more on the subscription based revenue. When a fitness business’s hardware point of sales revenue stops growing, starts dropping OR stabilizing, this doesn't become that high growth fitness tech company.
In order for the numbers to make sense, higher YOY revenue shows demand and this must grow at an accelerated rate OR you are paying for an overpriced company. We won't realize this until it's too late, after a handful of earnings calls or reports.
Unfortunately, the truth is human beings do die in the fitness world due to equipment, negligence, malpractice, overtraining etc all the time. So when you are a public company now, EVERYONE WILL KNOW. Now, Beachbody doesn't need Peleton to do well but if the market puts a premium on Peloton at these prices, they will look at Beachbody at some point and view it as an awesome deal to steal, before it gets hot. If Peloton, a 12 year company becomes successful at growing revenues, Beachbody Company will get that tailwind of that.
Why you should listen to what I have to say :
The only reason I have Coach in my name is because no matter what position I held, I was a Coach first, coach in real life and will die as a coach because I love teaching people how to fish and challenging them mentally.
So I started my own storefront fitness bootcamp business in 2011 after I graduated with a Phys Ed and Health degree in 2010. Now I didn't want to become a PE teacher, so I went after the fitness market due to obvious market demand. So I got certified as a NASM Personal Trainer and dove right in at this box gym doing 1on1s. I left the gym due to my cut on sales and payout. So From 2011-2014, I expanded my clientele demographics and trained different demographics from everyday workers to college students to middle class to affluent. 2014-2020 I took all that experience and leveled up to a very successful fitness boutique company Orangetheory Fitness.At the time we were at 250 nationwide, now there’s over 1,000 studios globally. I was a Coach, Regional Sales Manager and became a Corporate Business Manager. When 2020 COVID shutdown hit, immediately my forward thinking brain said..the game has changed. So Immediately went back to 1on1 for online training. So being on the ground level in the trenches, in different domains and conducting behind the scenes management, it shows I know a great deal about fitness. So listen up.
The GYM Business Model in a nutshell:
High Utilization Model
(70% or more members/package holders using the studio per week) is the bread and butter of boutique fitness service, so think Soul Cycle, Orangetheory fitness, Barrys boot camp, Crossfit,etc.
The objective here is we want you to use our service, 4-3x a week, you get results, then you'll stay committed to the community and get loud about us via Social or real life.
The Secret Sauce of boutique
- Hire, Develop & Retain Passionate, Electric, Rockstar Coaches
- Deliver exceptional customer service and create that Disneyland experience to keep them coming back for more.
- Leverage innovative fitness technology and protocols that are guaranteed to deliver results.
- Cult effect-- This happens when results are granted on the front end(workout) and backend(lost 30lbs, faster runner etc).. You create raving fans.
- How to know if a brand is a cult or has a strong culture? Check Social Media tags/influencers/topics--read the comments.
- Another way, think about this.. did you ever bump into one of their members? They usually say “I love XXXXX “, even after departure.
- Box Gyms typically don't deliver this emotional attitude it's usually..” I go to XXXX or I have a membership with.. I belong XXX” I think you get the picture by now.
- Word of Mouth- Whether in person or Social media, this promotes the brand at scale, which is why every trial and lead that walks in counts. Even if the person didn't like the service for them they could still recommend the brand based on first visit experience.
Low utilization Model
(20% or less members) is how Box gyms make their money. They try to get to the goal of 5,000 members on average, Charge low premium, that Joe and Sally, won't even think about when it hits their bill. Majority of human beings need communities and accountability to develop consistent habits and get results. You are paying for accessibility at a box gym. Hence why some gyms will charge a higher premium for additional services on top of cheap monthly membership, and upsell you other shit.
The Achilles heel of these boutique Fitness studios:
Note: We are focusing on fitness studios that claim to deliver weight loss. These businesses were created due to d the rate of Americans getting fatter. So Yoga, Pilates, etc serves a specialized need that is typically at the bottom of physical health priorities and will not be used in this thesis.
https://medicine.wustl.edu/news/more-americans-now-obese-than-overweight/
Coaches are the product
Finding great Rockstar coaches is a rough game. Most Coaches are divas and have inflated egos, I know cause I once was a diva lol. If a coach departs (which happens about 90% of time) clients/members will leave, depending if that coach is accessible through another service/location. So management of Coaches, onboarding, compensation and treatment is the foundation and key to a successful fitness boutique business.
The Boutique business model can be too Niched -
Crossfit was short lived as they put a cap on their demographics by default due to its programming of High Impact exercises( ie. Barbell Powerlifting and High Rep/Volume-100+).
On the front end it attracted a lot of influencers ( Instagramable), X -Athletes, and desperate people looking for something new.
But on the backend it lead to major injuries for the masses. Example of Not scalable.
Even with the great coaches or crossfit “safety and form first” studio, injuries couldn't be tapered due to the nature of the programming. That's why services like Barry's Bootcamp and Orangetheoryfitness don't have barbells. The idea is to deliver Low-Impact, widely accessible workouts for a larger audience, no pun. Also to add, Crossfit has now been dubbed as more of a sport and due to the founder racist tweets, a lot of Crossfit studios, dropped the CrossFit name or closed down entirely.
The boutique “insert fitness type” business model could be a fad
Kickboxing- I used to teach Ilovekickboxing due to my martial arts background, same concept here not scalable.
1 hour programs 35 minutes on the bag doing 6 combinations per 3 minutes.
15 minutes of Full body fitness.
After a certain period, the majority of members became bored (with just punching and kicking) or they lack the execution of bag hitting to deliver weight loss results. Had nothing to do with the Coach. If you grew up in traditional martials art or done any repetitive physical form of movement, then you are mostly likey won’t get bored because you understand the use case of form follows function. People came to kickboxing primarily for weight loss NOT technique or self defense. Last thing, finding a kickboxing coach is a lot tougher than General based Coaches. It was very difficult for me to find Kickboxing Coaches which burnt me out and I saw where this company was heading. That's why Orangetheory Fitness, F45, Barry Bootcamp works because it's low impact, general based fitness that focuses on full body workouts. Large supply of coaches and trainers.
What about Spin Studios as a Niche ?
- Peloton members could in theory get bored and crave an actual community spin studio. Everything is funnier in person but due to COVID this exodus most likely won't happen anytime soon. It seems scaling a fitness studio in these market conditions is very risky for Peloton and capital heavy.
- Peloton has 70 studios, started in 2012.
- Orangetheory Fitness has 1,200 studios, started in 2010.
- Barrys Bootcamp has 70 studios, started in 1998
- Since Spinning is a niche, the service requires participants to sit down on a bike and workout. There is typically lots of love for spin culture--some people are there due to the love of biking, had a series of ailments or they're older and want to do more of a low impact endurance routine. The problem with this model is you are sitting down. POINT BLANK. You are literally in place and doing very limited movement. Humans Beings are designed to move in multi planes. The motto..you don't use it, you lose it works here. Sitting down is something we do a lot..like really A LOT and the research is out that sitting down can cause more harm than good. I'm aware that members are sitting and moving their legs and will pop up shake it a little bit at certain points of the workout, but it doesn't stray away from the point that the average American :
- spends 7 hours laying down in bed
- 1 hour in a car
- 8 hours sitting at work
- 8 hours sitting down eating, socializing, watching tv , shitting
- In today's world, time is a very limited resource, so if you dedicate 1 hour to working out, clients will have a larger appetite to get some endurance, strength, power and rehab in a workout. People are becoming more knowledgeable on how to workout and what works for them. Hence programming now in fitness, we try to keep are clients from doing exercises in a seated position, train multiple domains and recommend, walking-sprinting-hiking outside/in nature as a free health benefit alternative for endurance activities. Science shows you can do 20-30 minutes of Low impact High Intensity Interval Training to improve cardiovascular health.
- https://www.researchgate.net/figure/Summary-of-Physiological-Benefits-of-HIIT_tbl1_287326221
What is the bear case on those General Fitness Boutique studios then?
Now even the boutique fitness studios have a cap, due to capacity, especially during COVID-19 pandemic. The only solution is opening a nearby location, which is not as easy at it seems and capital intensive. You have to have a high buxton score report, demographics to match, real estate available, the boots on the ground fitness team to deliver etc. The point is..due to the price point of General Fitness Studios it focuses on affluent neighborhoods next to well established franchise or corporate business. So think Whole Foods, European Wax, Massage Envy etc. Scaling membership on a micro level is tough, so franchisee are typically interested in opening more studios, to scale their business.
Now Box Gyms wins in this arena because they don't have a limit on demographics and is primarily focused on accessibility to everybody since about 80% of members don’t use memberships.
Focusing on Affluent isn’t always profitable
Peloton is a niched spin fitness business model that primarily focuses on the affluent demographics.
- 50% of Peloton members household makes $100k or more
- Targeting 30% of the US Population
- 70% of the US population is struggling with Obesity, whose more likely to become obese?
Noticed there is low and no growth between $100k-$200k households From 2014 to 2020
Since it's debut during the pandemic, it has become the "hot chick on the block" due to uptick in demand for At-Home workouts. This made people think they don't need a gym, they can actually workout at home. However this statement is overrated and human beings are not as predictable and will naturally miss the need for socializing and belonging to a community.
So watching on a screen isn't ENOUGH.
Do you know how many hours a day we spend LOOKING AT A SCREEN. Ever since I got into the stock market in 2020, I noticed I'm on the screen more and Crave MORE non -screen time or being out in nature. Most people will develop this crave at some point, if they haven't already.
This does affect Beachbody as well but will negatively impact Peloton more due to its price point.
Brand Awareness -Marketing Psychology
Ask any one this...
When you hear toothpaste what brand comes to mind…..
Crest ..Colgate..
Superheroes group….
Avengers
What do you think of Peloton?
Expensive…Biking.... For rich people
So Peloton has fitness classes but .the everyday person, less affluent, will not think to research if they can do Peloton without the bike. This will be a hard barrier to break. NOW even if they attempt to break it… the less affluent will STILL feel weird because it's like saying I rock " insert overpriced designer brands" but in reality I just bought the socks or belt. High School dynamics have stretched to Social Media and people like to flex and brag what works for them workout wise. I KNOW YOU BEEN TO THOSE FAMILIES/FRIENDS DINNERS!
Again, people will just go for what’s right for them and ignore the Status Symbol that Peloton holds.
By now you can see Peloton is purposely not trying to attract the masses and you see since they added new content user workouts from cycling dropped to 24%. Shows that users at some point will crave variety and cycling is currently the foundation and image of peloton.
OK SO NOW BEACHBODY..Finally
Beachbody is going through a spac to become public sometime in Q2 2021. It is severely undervalued compared to Peloton.
Beachbody has components of the box gym, where accessibility and lower barrier of entry exists. Members will keep it as a back up or may have it as part of their routine. It’s low cost like a gym membership thus making it a reasonable expense. Beacbody is basically the ultimate gym class in your living room. Don't have to worry about catching COVID, and you can train at your own time and pace. If you want to train naked go ahead! Who cares!
The Beachbody company will merge:
Beachbody - Large catalog of fitness workouts, nutrition
MyxFitness - Affordable Connected Cycling fitness
OpenFit - Macro influencers/Celebrities, Supplements
Beachbody is built for the masses and all types of level. The company is 24 years in the game of fitness and transition from VHS to DVDs to now Streaming,made the same pivot as Netflix.
Now Beachbody doesn't have a strong culture but their nutrition products delivered more than 50% of revenue.
Plus with their expansive catalog of workouts throwback workouts still get views
Openfit utilizing Macro Influencers and Celebrities to train their clients.
Fun Fact: OpenFit has a large stake in Ladder, sports nutrition company founded by Lebron James and Arnold Schwarnegger
MyxFitness: will be leveraging Openfit and beachbody.
Ok Peloton is like Apple..okk?
You might say oooh but Peloton is like Apple. Then I would argue well Beachbody is like Android.
Brand appeal is cute and important but Market share is key. Even with the love for Apple products and the culture behind it. Check the numbers below of world dominance of OS. This is helpful if you are attempting to use the Apple analogy since Peloton and Beachbody is an international fitness company.
SO Wrapping up… this isn't a matter of Beachbody being a Better results driven program than Peloton. I doubt that but It’s which company is undervalued. Which company has the higher probability of 10Xing your money within 5 years?
Some unnecessary thoughts but gems -
Beating Wall street
- You guys know by now Wall street is usually wrong and late to the party about alot of shit…many examples.. Apple, Amazon, FB, Bitcoin, Tesla, Gstop..
- So the key to success is to invest in fundamentally sound companies that will change the way we do things and can make an great impact within the next 5-10 years.
- Wall street uses their old Fundamental Quantitative research models to evaluate what companies are worth but for NOW in the present not the future. There's been countless analysts on CNBC mentioning how Wall Street doesn't know how to evaluate growth companies and keep screaming that value companies are where it's at.
- Wall street being incorrect now is actually a good thing. If you're smart, a forward thinker, and can delay gratification, this provides us an opportunity to buy more shares, at a cheaper price. Hence why having thoroughly DD and High convection is very important.
- It seems wall street won't cover Beachbody until the companies first and second earnings. Beachbody is on its way to become public sometime in Q2.
Don't get to caught up on financially packaged marketing lingo " Value Investing"
I’m holding 1600 shares and continuing to build..see you at the finish line.
Live Googledoc for distro: https://docs.google.com/document/d/1AluqYXYzDyD8Ro2Ju5JXc4jS-TqrRTWQacmpX_B32gs/edit
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