Forget Peloton, this gym stock may be a variegated fool after the lock-in workout winner

2021-11-12 09:27:22 By : Ms. Ella Zhang

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There is no doubt that during the prolonged COVID-19 lockdown in 2020, Peloton Interactive (NASDAQ: PTON) is the leader among sports companies, and its share price has soared 220% by the end of the 2020 fiscal year. These amazing gains were realized in just four months, from COVID-19 to March, and the fiscal year ends on June 30.

However, now that the panic panic is fading, the government has eased the economic shutdown, and Peloton's performance is severely staggering. Other companies, such as gym franchisee F45 Training Holdings (NYSE: FXLV), seem to be making a big splash after the lockdown in 2021. In fact, F45 has just made an acquisition that can help it win market share from Peloton. See why its business model may give it an advantage over last year's big winners.

Peloton's stock price plummeted after the first quarter earnings report for the 2022 fiscal year released on November 4 showed weak performance and sharply reduced guidance. The company's stock price fell from around US$86 per share before the quarterly results announcement to around US$51 next Monday, a drop of more than 40% over the weekend.

The root cause of the stock price plummet is not difficult to find. Although revenue increased by approximately 6% year-on-year, there was still a net loss in the quarter. The top-line and bottom-line results were lower than the consensus expectations of Wall Street analysts. Perhaps more importantly, Peloton cut its guidance for the 2022 fiscal year. Compared with the forecast just a quarter ago, management lowered its revenue forecast by approximately 15%. The company also expects a loss before interest, taxes, depreciation and amortization (EBITDA) to be 39% larger than previously expected, keeping it away from generating positive net income. A key strategy, namely to reduce the price of its regular bicycle models, also resulted in a significant loss of revenue, rather than initiating profitable sales as expected.

According to CNBC reports, Peloton also froze hiring on November 5, after the company had roughly doubled its number of employees in the first half of this year. This move was clearly planned before the stock market crash. Chief Financial Officer Gil Woodworth said on the first quarter earnings call that “Identified areas of savings include major adjustments to our entire company’s recruitment plan and optimization of marketing expenditures. And restrict showroom development.” It is said that the recruitment freeze involves all departments.

"Obviously, we underestimated the impact of the reopening on our company and the industry as a whole," Woodworth also said on Peloton's earnings call, but gym operator F45 Training is better able to benefit from this trend. F45 is a recent gym stock IPO backed by action movie actor Mark Wahlberg. Its revenue has grown strongly year-on-year. It is actively expanding its franchised gym network, claiming that it has "blank space"—an untouched expansion area— There are 7,000 more gyms in the United States and 16,000 internationally. 

F45 combines social interaction and higher motivation of on-site gym exercises with technology integration, enabling customers to choose from 6,000 different exercises, and its business model is a strong competitor to win the business of people returning to physical gyms. According to Jefferies' research, by June, the number of Americans who went to the gym in person had risen to 83% of pre-pandemic levels.

F45 Training signed a deal on November 8 to acquire Vive Active, an Australian company focused on Pilates exercise, for undisclosed cash, which may increase its momentum, which may increase its momentum. Although F45 describes Vive as "profitable" and "high growth", the most important part of the acquisition may be the "studio, home streaming and on-demand courses" provided by the Australian company. Once the acquisition is completed, its "Vive Stream" platform-games of the word "live"-used for streaming and on-demand online exercises will be at the disposal of F45, giving F45 the opportunity to confront Peloton head-on in its remote home training home. . F45 stated that it already has franchise partners lining up to launch Vive Active studios and other services in the United States.

Although it is not clear how F45 will develop Vive's business in the United States, using its streaming media and on-demand home exercise platform to develop its business in this area will fit well with the current exercise trend. NPD Group’s research shows that many fitness enthusiasts now adopt a “hybrid” approach, combining going to the gym and using Internet services for home exercise. According to CNBC, Jefferies analyst, retail and fitness expert Randy Konik (Randy Konik) said that customers seeking convenience now “realize that they can work out in the gym three days a week, and then three to three days a week. Work out at home or in the gym for four days. Basement."

In this case, expanding its streaming media and on-demand exercise products through Vive Stream while continuing to increase physical locations may be an effective growth strategy for F45 Training. Although Peloton still only relies on half of the equation, F45 is aimed at both ends of the spectrum. Since its launch, F45's stock is still trading sideways and volatile, but investors interested in fitness stocks may want to pay attention to its take-off signs as it advances its growth strategy in the next few quarters. 

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