Why Peloton Could Be the Next Apple
The fitness ecosystem is gonna blow Nike and Lululemon out of the water
In a recent investment-focused article, I argued that long-term investors should consider buying Peloton stock on the basis of the power and potential of its ecosystem.
In this article, I rough sketch how I think Peloton becomes the Apple of fitness, if it isn’t already. I keep it short and sweet because it’s a straightforward story, so why drag it out? By the end of the article, you’ll see where I’m coming from as you draw your conclusions from my conviction.
Some investors consider Peloton a pandemic play. I don’t agree with this, however when I analyzed the stock I acknowledged the impact this perception might have:
Peloton will probably crash. More than most other COVID-19 stocks, investors see it as a pandemic play. If you want to buy the stock at a lower price, you will likely have the opportunity to take advantage of this false perception.
Ecosystem plays scare lots of investors. Nine times out of 10 they’re going to be “overvalued.” Netflix and Amazon — and others — have taught us that valuation often doesn’t matter. When you have a decade’s (or more) long growth runway, investors will always bid your stock up on this anticipated growth, especially if it’s exponential. So you have to vision the story as an investor. It has to resonate with you.
The pandemic’s far from over, yet Peloton stock still crashed on positive vaccine news and the general sense that a Biden-Harris administration will take the virus seriously amid an action plan to get it under control. Some investors view companies such as Peloton as quarantine-related fads that will go away as COVID-19 subsides.
Concerns also exist that Peloton will have difficulty meeting increased demand. This is a good problem to have and only places focus where it ought to be — on the broader ecosystem.
Consider this from a recent Wall Street Journal article about Peloton:
Style, once secondary for a company that was built on tech-y convenience, has come to the fore at Peloton. As it rides high on the success of its biggest year yet — in September, the 8-year-old company posted its first profit, with revenue for the 2020 fiscal year topping $1.8 billion — it is looking for ways to grow even further. To be perceived as a “lifestyle brand” rather than just a bike purveyor, it must expand its reach through clothing…
On Peleton’s e-commerce site, launched in 2015, there’s a little something for everyone who hops on a bike or fires up the app, whether that’s logo sports bras and leggings or novelty items like a shiny black puffer jacket and a Peloton X Grateful Dead tie-dyed tank. Although it has a history of collaborating with establishment players like Nike and Lululemon, the brand is moving toward making more of its own gear.
Call me crazy, but the WSJ didn’t go far enough. Peloton is more than a “lifestyle brand.” It’s a fitness and health ecosystem on the verge of Apple-like domination that goes something like this:
- Apple’s ecosystem: Hardware (iPhone, iPad, Watch, Mac) connected to an ever-expanding Services business that spans audio and visual entertainment, be it Apple-produced content, third-party content, or apps.
- Unlike Nike and Lululemon, Peloton’s ecosystem begins with something that closely resembles Apple’s — aspirational hardware essentially.
- Like Apple did over the years, Peloton will look to expand its base and get its hardware into the hands of a broader segment of consumers.
- While the scale of adoption is several notches lower (everyone “needs” a phone these days, not everyone “needs” a Peloton), Peloton will become relatively ubiquitous in the fitness and health space.
- Peloton continues to expand its “services” (e.g., content to go alongside its hardware) and apparel businesses.
- It’s the ideal, most aspirational and sticky ecosystem in the space.
That’s merely a rough sketch, but you get a sense of what I’m getting at. Peloton will not need Nike and Lululemon to continue to build out its Apple-like footprint.
Peloton has no need to partner with other fitness companies. It can do what they do (be it apparel or something else) better and inside the aforementioned walled ecosystem.
Peloton should set its partnership sights higher. It should look to a company such as CVS Health, which is building out a healthcare ecosystem focused on things such as prevention, convenience, and empowering consumers. Peloton should look to Starbucks and find creative ways to integrate its brand into the Starbucks experience, particularly post-pandemic in brick and mortar settings with ample square footage.
Use your imagination to see exactly how Peloton could strategically align with CVS Health, Starbucks, and other companies. It’s this type of visionary thinking that makes it easier to wrap your head around the notion that Peloton is an ecosystem play with the type of potential Apple flashed in the early days of the iPod then iPhone explosion.
