Failory - Peloton's Business Model

Hey — It's Nico.

This month, I'm publishing articles analyzing different startups' business models. This week, we dove into How Peloton is Making Money.

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What is Peloton? Peloton is a US-based exercise equipment and fitness media company known primarily for its flagship products, the Peloton Bike and the Peloton Tread.

What really sets Peloton apart is the company’s first-of-its-kind subscription platform, which allows users to stream fitness classes that they can take part in from home using their Peloton hardware or other exercise equipment.

How was Peloton started? John Foley came up with the idea for Peloton in 2011 looking to solve a personal problem he had: he was increasingly unable to attend fitness classes due to the demands of his job and children.

Soon later, Foley found his first co-founder, Tom Cortese, and used his Harvard Business School and executive experience to raise an initial $350,000 seed round. After this, three more co-founders joined Peloton: Graham Stanton, Hisao Kushi, and Yony Feng.

8 years later, in September of 2019, Peloton was debuting on the Nasdaq at $29 a share. In the article, we dive deeper into Peloton's origins story.

How does Peloton make money? They have three main channels:

1. Connected Fitness Products: Peloton’s connected fitness products are the main pieces of hardware and equipment the company sells, primarily the Peloton Bike (starts at $1,495) and Tread (starts at $3,495).
2. Fitness Class Subscription Services: Peloton offers a digital subscription to fitness classes through the Peloton App, which costs $12.99 per month. There's also an All-Access Membership, which includes courses that are exclusively for the Bike and Tread. It costs $44 per month.
3. Apparel & Accessories: Peloton sells heart rate bands, heart rate monitors, earbuds, resistance bands, yoga blocks, yoga straps, alternative Bike pedals, Bike cleats, and other accessories. They also offer all your standard workout clothing.

How much money does Peloton make? Peloton made $4.02 billion in 2021. This is more than double what the company made in 2020, when it reportedly earned $1.83 billion.

Peloton’s sales of physical fitness products, including the Bike, Tread, and accessories and apparel, accounted for approximately 70% of this revenue. Subscription memberships accounted for the other 30%.

Is Peloton making a profit? No. They have reported a cumulative net loss of $1.9 billion for the last two quarters of 2021 and the first two quarters of 2022.

Peloton does not explicitly disclose its overhead cost structure, but there are a number of factors that make it an expensive business to run. These include manufacturing, research and development, promotion, and instructors’ salaries.

Peloton has also been dealing with supply chain issues that have resulted in increased business costs related to shipping. In order to combat these problems, they have recently acquired US-based fitness machine production company Precor for $420M.

How much money has Peloton raised? Peloton has raised a total of $1.9 billion in funding over nine rounds. The most recent round took place on February 9, 2021, during which Peloton raised $875 million from investors including NBCUniversal and Wellington Management.

When did Peloton go public? Peloton went public on September 26, 2019. At the time of the company’s IPO, shares were valued at $29 each, but they dropped down to $27 a share for the opening trade. This gave Peloton a valuation of $7.2 billion, about 11% lower than its initial valuation of $8.1 billion.

What is Peloton’s ownership structure? Peloton is a publicly-traded company, with institutional investors owning more than 50% of the company. Individual investors from the general public own approximately 12% of Peloton, a number that is rising.

It is not clear exactly how much of Peloton is owned by co-founders and executives in total, but Foley and other company insiders are said to control about 60% of the company’s voting stock.

How much is Peloton worth? Despite Peloton shares going up a whopping 440% in 2020 to nearly $152 per share at the end of the year (a $50 billion market valuation), the company’s valuation has steadily declined since the height of the pandemic and is currently valued at around $3 billion, with shares hovering around $9 a piece.

Once again, here's the article. On it, you'll find further information about Peloton's monetization channels and the company's figures.

Last week we analyzed the business model of Klarna, the giant Fintech unicorn. You can find the post here.

As every week, here are 3 recommended resources:

• ​What We Learned From Our YC Applications: Relate's co-founders applied six times to YC. They were rejected five times, but this year they finally made it. In this article, they share the journey and what they learned.
• ​SaaS Content Marketing: Most SaaS doing content marketing are focusing on the wrong kind of content. In this article, Grow & Convert shares their approach, which is based on focusing on bottom-of-the-funnel keywords.
• ​I Bootstrapped My SaaS to $15,000 MRR: Jon Yongfook bootstrapped Bannerbear to $15k/mo in just 3 years. Last year, he did an AMA and shared some great tips for growing a SaaS.

Hope you enjoyed this week's article and curated resources ;)

Cheers,

Nico