Is This Gym Stock the Peloton Killer?

Training stocks for home like Peloton (NASDAQ: PTON) and nautilus soared in 2020, and people stuck inside tried to find ways to exercise in the depths of the pandemic. It did so at the obvious expense of traditional gym operators, an industry that was decimated by the economic turmoil last year.

Planet Fitness (NYSE: PLNT) was the main victim of Fitness at home Trend, but last quarter’s results paint a positive picture. For this large and rapidly growing franchisor and fitness center operator, the trend reversal seems to be underway.

Does this spell mean for Peloton?

Image source: Getty Images.

Time to get in shape

Planet Fitness has come a long way since its locations had to temporarily close in 2020 due to the spread of the pandemic. In the most recent quarter (Q2 2021), sales rose 241% to $ 137 million. This marked the first time since the fourth quarter of 2019 that Planet Fitness saw quarterly revenue growth year over year, a possible sign that the company has put the health crisis in the rearview mirror.

Net income decreased from a loss of $ 32 million in the year-ago period to a profit of $ 15 million in the most recent quarter. The key to this is increasing consumer convenience in returning to the gym. June marked the sixth straight month that Planet Fitness added members, now more than 15 million.

Management recently noted that no matter how bad things were, a total of zero Planet Fitness locations have been permanently closed due to the financial impact of the pandemic. However, the situation for the entire industry is not so nice. According to the International Health, Racquet & Sportsclub Association, 9,000 gyms, or 22% of the US total, have permanently closed their doors due to the coronavirus. It seems as if Planet Fitness has strengthened its competitive position while the rest of the industry shrank.

As of June 30, the company had a total of 2,170 locations, and management firmly believes that number can reach 4,000 domestically. In fact, this might underestimate the opportunity as the health crisis has significantly changed the landscape for fitness centers. “So we always thought that the 4,000 might be on the lower side of the potential that is now emerging from COVID,” said CEO Chris Rondeau at the Second quarter conference call.

Management forecasts full year revenue and adjusted net earnings per share of $ 535 million and $ 0.68, respectively, by mid-year, which would be a significant improvement over 2020 numbers. As long as net membership gains persist and there are no more devastating pandemic-related disruptions, the strong momentum is expected to continue.

Don’t worry, Peloton

The reopening of the economy and the subsequent success of Planet Fitness shouldn’t worry Peloton shareholders for two very important reasons.

First of all, being a member of Planet Fitness does not prohibit you from being a Peloton customer. In fact, around 40% of Peloton users have a gym membership. It’s not mutually exclusive, which benefits both companies. People can do any exercise they want to do as each can complement each other to provide a complete range of training.

Second, the two companies target different types of customers. Planet Fitness attracts the first fitness visitors. This is someone who is unfamiliar with exercise in general but knows they want to improve their overall wellbeing. A membership plan that starts at $ 10 per month lowers the barriers to entry for a customer.

On the flip side, Peloton could of course appeal to those who are avid cyclists, or even at a more advanced level on their fitness journey, especially since the cheapest option (the bike) will cost you $ 1,895. Additionally, the majority of Peloton’s customers come from households making more than $ 100,000 a year.

Peloton’s business was doing well before 2020, and the home fitness craze has a long way to go. Even though Planet Fitness is back in expansion mode, it won’t slow the pioneer of connected fitness.

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Neil Patel has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Peloton Interactive and Planet Fitness. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.

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