"We derive a significant majority of our revenue from sales of our Bike and a decline in sales of our Bike would negatively affect our future revenue and operating results;"
What many people don't know is that you can access all their classes using your own exercise bike and their apps, paying a little over 1/4 of the normal monthly subscription fee. The limitations of this approach is that you don't get to participate in the leader-board gamification of your workout, and your bike won't have the integrated sensors to tie your output back into their app, but for a fraction of the price of both the bike and the service, it's a good way to either test out their service to determine whether it's something you're into, or to permanantly utilize most of their product at a fraction of the cost.
Nice unit economics:
Our Connected Fitness Subscriber Lifetime Value for fiscal 2017, fiscal 2018, and fiscal 2019, was $267.1 million, $604.4 million, and $1,053.8 million, respectively, or $3,433, $4,015, and $3,593 per Connected Fitness Subscriber, respectively.
As we expand our content offering, develop new interactive software features, and grow our community of Members, we believe we can maintain a low Average Net Monthly Connected Fitness Churn, resulting in a high Connected Fitness Subscriber Lifetime Value. In addition, with the growth of our Connected Fitness Subscriber base over time, we expect to improve our Subscription Contribution Margin as we scale our fixed content production costs.
Net Customer Acquisition Cost (profit) can be calculated as Adjusted Sales and Marketing Expense (which excludes depreciation and amortization expense and stock-based compensation expense) less Adjusted Connected Fitness Product Gross Profit (which excludes depreciation and amortization expense and stock-based compensation expense). Our Net Customer Acquisition Costs (profit) for fiscal 2017, fiscal 2018, and fiscal 2019, was $14.2 million, $(4.9) million, and $1.6 million, respectively, or $183, $(33), and $5 per Connected Fitness Subscriber added, respectively. We believe we will continue to drive rapid payback and efficiencies in Net Customer Acquisition Costs (profit) by further leveraging sales and marketing investments as a result of heightened brand awareness and growing word-of-mouth referrals. Changes in Connected Fitness Product margins or sales and marketing expenses may result in an inability to fully offset our customer acquisition costs.
What's amazing is that they get people to pay _more_ than they would - or would even think of paying - for a streaming service like Netflix or Hulu, but their content creation costs are obviously a fraction of what it take to produce even one show on those platforms.
It really makes we wonder how we could be on the verge of a recession when companies like this become successful? Maybe I'm just too cheap to ever buy something like this but it feels like a mass marketed luxury good that requires a decent level of consumer confidence to have succeeded.
I bought one. I like it because it's pretty high quality, I didn't have to pay cash ( using Affirm it's 62/mo /39 months), and I was able to test ride 2 of them for free ( apartment complex has a gym with one, but very hard to get a time to ride ). My girlfriend likes it because it saves tons of time compared to driving to e.g. SoulCycle or a spin class and they have nice social features like a competition ladder. But I don't do the classes, I just use it for the free ride.I try to set new PRs in terms of wattage, peak HR etc. Edit: I also like that you can sync your heart rate/ distance to Apple Health and it counts towards your rings in Apple Activity/Apple Watch.
That's exactly why bubbles form and lead to economic cycles: people get too confident and overextend themselves.
In this particular cycle, more companies seem to be using this profitable business model: charge huge margins for your product and sell it on credit. Bikes, SUVs, higher education (phones, too, but that's not new). When the economy hits a blip -- say, due to a trade war -- people start losing their jobs, default on the loans, and things spiral down.
(To be clear, I'm not saying it will happen soon. It might, and probably will take years and be a mild pop.)
Edit: This isn't a commentary on Peloton specifically, but all of the S-1 posts we've been seeing on HN recently.
I wouldn't interpret this behavior as success per se. I think a significant motivating factor for going public now would be to provide liquidity for your existing investors (and yourself as the founder) before a recession hits.
If you've had significant capital tied up in a company and you're worried a recession is on the horizon, then this is a great time to push your company to go public. If you wait much longer then you risk either:
1. Going public in a recession and losing some of your potential gains.
2. Waiting an unknown amount of time for the economy to rebound and to pull your cash out then. This assumes the company weathered the recession well AND given you the same or better gains than investing in something else during that time.
TL;DR: Going public now is a much safer time for investors to divest than closer to or after the coming recession.
They became successful in the bull market. Markets and debt cycles don't act like sine waves. They build up to a peak, and then they fall dramatically, then they build up again, and they fall.
Being "on the verge of a recession" means nothing. There have been people constantly predicting the next recession since 2011. And there was zero talk of an economic downturn in 2007.
The company is selling the bikes and treadmills at a 43% gross margin. This company somehow sells its bicycles at a higher gross margin than Apple(38%). How!
luxury design is well stablished field. And it is not that impacted by world crisis and recession.
The trick here is fooling common investors into into without realizing it is a luxury market.
Basically, there is a small but lucrative market. You know that you have to milk it while you can and move on.
This kind of startup, exploit this small market mostly to inflate the numbers. Probably they already have 100% of their real market cap, but they will claim that they can still expand to billions of people that pay $5/mo gyms all around the world and only increase their growth (when they very might be already at 100% and realistically their future growth is zero ...or until the pile of money they get runs out)
...a funny exercise: search for the first anecdotes from the first clients of juicero here on HN ;)
On the surface this is basically the Juicero of fitness equipment. If you want a good piece of workout equipment, buy a Concept2 erg. If you want a bike, you can get a carbon-frame bike for the same amount of money and then just get a trainer for it. Ostensibly there is zero reason for this to exist.
The one argument in its favor is that youth sports are usually very heavily subsidized by masters sports. So if you weren't on a varsity sports team in high school or college and didn't learn how to work out properly, then it's easily 5x more expensive to do so as an adult. So maybe there is some value in having someone to teach you how to do basic cardio.
I feel like you're onto something. They take an iPad, slap it on an exercise bike, and charge $2000 for it. I could do that for the cost of the parts. The only thing protecting their business model is their exclusive patent on the idea. Perhaps the patent system is what is truly at fault here?
The subscription part is interesting, they did 4x the sales in bikes -connected fitness products- as 2 years ago (719/183), and cogs is ~4x (410/113). But subscription revs are up 5x (181/35) and cogs on that are only up 3x (100/3).
At 33:30, John Foley and Guy Raz start talking about the Kickstarter and how it didn't achieve its goals.
At 35:00, they talk about the the initial pricing for the bike being breakeven ($1,200) and how that didn't work. The feedback was "at $1,200 [the bike] 'seems cheap', 'it sounds cheap.' And so, we said, well, let's increase the price...."
You can listen to more of the podcast, unpack this, and analyze what the reveals about that the demographics of the customers with whom they've connected so far. Without any intent to be critical, the HN readers who think the bike is too expensive have the opposite reaction to the people who became customers.
I suspect the average Peloton customer has more money than time.
Wow I was heavily skeptical of Peloton until these numbers. I would have thought who would pay a few thousand dollars for a machine and then an additional $39 a month. But 92% of all customers who have purchased the equipment are still subscribers at the end of June 2019, that is extremely impressive.
Do you spin, and have you ridden a Peloton? Nearly every person I know who likes spin enough to go to spin studios buys a Peloton after test riding one. They did that good of job nailing and improving the spin studio experience.
Their risk is that spin studios are a luxury item over and above gym memberships and will be the first things cut in a recession.
There are some funny things in the Risk Factors section:
“We have identified material weaknesses in our internal control over financial reporting and if our remediation of such material weaknesses is not effective, or if we fail to develop and maintain an effective system of disclosure controls and internal control over financial reporting, our ability to produce timely and accurate financial statements or comply with applicable laws and regulations could be impaired.”
There are also three long subsections about music licensing (edit: and music-related legal proceedings mentioned in multiple places).
> In addition, customers of certain of our providers have been subject to litigation by third parties claiming that the service and basic HTTP functions infringe their patents. If we become subject to such claims, although we expect our provider to indemnify us with respect to at least a portion of such claims, the litigation may be time consuming, divert management’s attention, and, if our provider failed to indemnify us, adversely impact our operating results.
The bike’s only have a lifetime of a couple years and the experience isn’t that great. The promise of software upgrades only take it so far until planned obsolescence kicks in.
This is just creating a fleet of useless metal that will have software vulnerabilities up the wazoo in a decades time.
I use a Keiser M3i with the Peloton app on an iPad. It’s great. The Peloton app records heart rate and cadence via Bluetooth. I run the Keiser app on my phone to record additional metrics, such as power. Much better solution than being tied to a proprietary Peloton bike while still enjoying the benefits of the always-fresh Peloton classes.
I have been waiting for essentially this, but with racing games onscreen. Does anyone know if they allow, or plan on allowing third party apps and games?
I can see a game like Mario Kart being very popular.
That would be amazing... I've never tried a spin class but if I knew that I could play Mario Kart or Burnout or something like that on the bike... what an idea!
I will invest in this company because I love the product and so does everyone I know who uses it.
But the general and administrative costs in 2019 seem ridiculously high. The tender offer last year only makes up 1/3 of that increase. What's up with that?
I was surprised to see how low the gross margin is on their subscription business, it has only recently broken above 50%. The cost of revenue for their subscription business includes licensing the music in their workouts, and the costs to operate their NYC and London studio.
I was also surprised to see the margins on the bike itself are about the same as on the subscription business. They have room to lower the price of the bikes to get more customers hooked on that sweet, sweet recurring subscription revenue.
These guys are following the Uber business model. Burn as much cash as possible up front to generate buzz and big numbers for the IPO, worry about profitability later. The problem is that, as Uber has shown, profitability never comes. Peloton will limp around for a few years after the executives have all taken their sweet IPO money home and become a shell of what it once was. Too bad.
I just wrote this post to summarize my views on the S-1. Focused more on the skeptical side, since I know there will be plenty of euphoria to counter-balance it:
[+] [-] uptown|6 years ago|reply
"We derive a significant majority of our revenue from sales of our Bike and a decline in sales of our Bike would negatively affect our future revenue and operating results;"
What many people don't know is that you can access all their classes using your own exercise bike and their apps, paying a little over 1/4 of the normal monthly subscription fee. The limitations of this approach is that you don't get to participate in the leader-board gamification of your workout, and your bike won't have the integrated sensors to tie your output back into their app, but for a fraction of the price of both the bike and the service, it's a good way to either test out their service to determine whether it's something you're into, or to permanantly utilize most of their product at a fraction of the cost.
[+] [-] discreteevent|6 years ago|reply
https://mobile.twitter.com/clueheywood/status/10896997623312...
[+] [-] jakarta|6 years ago|reply
As we expand our content offering, develop new interactive software features, and grow our community of Members, we believe we can maintain a low Average Net Monthly Connected Fitness Churn, resulting in a high Connected Fitness Subscriber Lifetime Value. In addition, with the growth of our Connected Fitness Subscriber base over time, we expect to improve our Subscription Contribution Margin as we scale our fixed content production costs.
Net Customer Acquisition Cost (profit) can be calculated as Adjusted Sales and Marketing Expense (which excludes depreciation and amortization expense and stock-based compensation expense) less Adjusted Connected Fitness Product Gross Profit (which excludes depreciation and amortization expense and stock-based compensation expense). Our Net Customer Acquisition Costs (profit) for fiscal 2017, fiscal 2018, and fiscal 2019, was $14.2 million, $(4.9) million, and $1.6 million, respectively, or $183, $(33), and $5 per Connected Fitness Subscriber added, respectively. We believe we will continue to drive rapid payback and efficiencies in Net Customer Acquisition Costs (profit) by further leveraging sales and marketing investments as a result of heightened brand awareness and growing word-of-mouth referrals. Changes in Connected Fitness Product margins or sales and marketing expenses may result in an inability to fully offset our customer acquisition costs.
[+] [-] michaelwilson|6 years ago|reply
[+] [-] SanchoPanda|6 years ago|reply
[+] [-] tempsy|6 years ago|reply
[+] [-] cellis|6 years ago|reply
[+] [-] dralley|6 years ago|reply
[+] [-] gniv|6 years ago|reply
In this particular cycle, more companies seem to be using this profitable business model: charge huge margins for your product and sell it on credit. Bikes, SUVs, higher education (phones, too, but that's not new). When the economy hits a blip -- say, due to a trade war -- people start losing their jobs, default on the loans, and things spiral down.
(To be clear, I'm not saying it will happen soon. It might, and probably will take years and be a mild pop.)
[+] [-] bluesroo|6 years ago|reply
I wouldn't interpret this behavior as success per se. I think a significant motivating factor for going public now would be to provide liquidity for your existing investors (and yourself as the founder) before a recession hits.
If you've had significant capital tied up in a company and you're worried a recession is on the horizon, then this is a great time to push your company to go public. If you wait much longer then you risk either:
1. Going public in a recession and losing some of your potential gains.
2. Waiting an unknown amount of time for the economy to rebound and to pull your cash out then. This assumes the company weathered the recession well AND given you the same or better gains than investing in something else during that time.
TL;DR: Going public now is a much safer time for investors to divest than closer to or after the coming recession.
[+] [-] pbreit|6 years ago|reply
[+] [-] 013a|6 years ago|reply
[+] [-] paxys|6 years ago|reply
[+] [-] S3an12|6 years ago|reply
[+] [-] losteric|6 years ago|reply
[+] [-] gcbw3|6 years ago|reply
The trick here is fooling common investors into into without realizing it is a luxury market.
Basically, there is a small but lucrative market. You know that you have to milk it while you can and move on.
This kind of startup, exploit this small market mostly to inflate the numbers. Probably they already have 100% of their real market cap, but they will claim that they can still expand to billions of people that pay $5/mo gyms all around the world and only increase their growth (when they very might be already at 100% and realistically their future growth is zero ...or until the pile of money they get runs out)
...a funny exercise: search for the first anecdotes from the first clients of juicero here on HN ;)
[+] [-] realshowbiz|6 years ago|reply
On a personal level it would be a stretch for me to spend $2200 when I could get a used airdyne and an ipad for less than half.
[+] [-] unknown|6 years ago|reply
[deleted]
[+] [-] Alex3917|6 years ago|reply
The one argument in its favor is that youth sports are usually very heavily subsidized by masters sports. So if you weren't on a varsity sports team in high school or college and didn't learn how to work out properly, then it's easily 5x more expensive to do so as an adult. So maybe there is some value in having someone to teach you how to do basic cardio.
[+] [-] jimbob45|6 years ago|reply
[+] [-] SanchoPanda|6 years ago|reply
The subscription part is interesting, they did 4x the sales in bikes -connected fitness products- as 2 years ago (719/183), and cogs is ~4x (410/113). But subscription revs are up 5x (181/35) and cogs on that are only up 3x (100/3).
[+] [-] uptown|6 years ago|reply
https://www.npr.org/2019/04/05/710439824/live-episode-peloto...
[+] [-] dave_aiello|6 years ago|reply
At 33:30, John Foley and Guy Raz start talking about the Kickstarter and how it didn't achieve its goals.
At 35:00, they talk about the the initial pricing for the bike being breakeven ($1,200) and how that didn't work. The feedback was "at $1,200 [the bike] 'seems cheap', 'it sounds cheap.' And so, we said, well, let's increase the price...."
You can listen to more of the podcast, unpack this, and analyze what the reveals about that the demographics of the customers with whom they've connected so far. Without any intent to be critical, the HN readers who think the bike is too expensive have the opposite reaction to the people who became customers.
I suspect the average Peloton customer has more money than time.
[+] [-] tguedes|6 years ago|reply
[+] [-] matwood|6 years ago|reply
Their risk is that spin studios are a luxury item over and above gym memberships and will be the first things cut in a recession.
[+] [-] kgwgk|6 years ago|reply
“We have identified material weaknesses in our internal control over financial reporting and if our remediation of such material weaknesses is not effective, or if we fail to develop and maintain an effective system of disclosure controls and internal control over financial reporting, our ability to produce timely and accurate financial statements or comply with applicable laws and regulations could be impaired.”
There are also three long subsections about music licensing (edit: and music-related legal proceedings mentioned in multiple places).
[+] [-] uptown|6 years ago|reply
I'm a customer. I've noticed that some of their old classes are no longer available, presumably due to music licensing issues.
[+] [-] stilist|6 years ago|reply
> In addition, customers of certain of our providers have been subject to litigation by third parties claiming that the service and basic HTTP functions infringe their patents. If we become subject to such claims, although we expect our provider to indemnify us with respect to at least a portion of such claims, the litigation may be time consuming, divert management’s attention, and, if our provider failed to indemnify us, adversely impact our operating results.
[+] [-] michaelvoz|6 years ago|reply
[+] [-] tbrock|6 years ago|reply
The bike’s only have a lifetime of a couple years and the experience isn’t that great. The promise of software upgrades only take it so far until planned obsolescence kicks in.
This is just creating a fleet of useless metal that will have software vulnerabilities up the wazoo in a decades time.
[+] [-] eddyg|6 years ago|reply
Mike biggest complaint is the music change. Way too many knock-off versions of songs by “studio musicians” instead of the original artists... https://www.engadget.com/2019/04/25/peloton-users-music-comp...
[+] [-] PierceJoy|6 years ago|reply
[+] [-] chrisgd|6 years ago|reply
[+] [-] pazimzadeh|6 years ago|reply
I can see a game like Mario Kart being very popular.
[+] [-] veritas3241|6 years ago|reply
[+] [-] trimbo|6 years ago|reply
But the general and administrative costs in 2019 seem ridiculously high. The tender offer last year only makes up 1/3 of that increase. What's up with that?
[+] [-] stilist|6 years ago|reply
$915000000 revenue / 1800 full-time employees = ~$500k revenue per employee, though.
[+] [-] asmithmd1|6 years ago|reply
I was also surprised to see the margins on the bike itself are about the same as on the subscription business. They have room to lower the price of the bikes to get more customers hooked on that sweet, sweet recurring subscription revenue.
[+] [-] unknown|6 years ago|reply
[deleted]
[+] [-] woeirua|6 years ago|reply
[+] [-] mrnobody_67|6 years ago|reply
[+] [-] justinator|6 years ago|reply
[+] [-] cbhl|6 years ago|reply
[+] [-] SanchoPanda|6 years ago|reply
[+] [-] pushcx|6 years ago|reply
The lie factor[0] of the "Peloton's Current Markets" chart is 4.2. The lie factor of the "U.S. Only" chart is 5.8.
[0]: https://infovis-wiki.net/wiki/Lie_Factor
[+] [-] mthurmond|6 years ago|reply
https://medium.com/@mattthurmond/a-skeptical-look-at-peloton...
[+] [-] mrnobody_67|6 years ago|reply
Losses going up 4x year over year to $200m on $1b in revenue is pretty insane though.
[+] [-] jdalgetty|6 years ago|reply