📮The Sunday Newsletter archive

For A Fully Equipped Home Gym

The first three quarters of the year were quite spectacular. $257 billion was raised in IPOs and SPACs (obviously), a record compared to anything we’ve seen since the internet bubble in 2000. If the Sunday Newsletter delivers fashion and lifestyle news next year because of no IPO activity don’t blame me. But now let’s see the most promising name that makes its debut next week.

The global market for fitness classes, equipment and wearables is booming, just look at Peloton ($PTON); its sales doubled last year and its stock soared 440%. And now, one of its biggest competitors, iFIT ($IFIT), is planning to go public next week. iFIT is the #1 🏆 provider of large fitness equipment in the US, with a 40% market share. It owns several brands such as NordicTrack and ProForm.

The company has a similar business model to Peloton. It sells connected fitness equipment such as treadmills, bikes, and fitness mirrors and geneerates recurring subscription revenue offering on-demand content. It currently has 1.5 million subscribers, up 110% y/y, who get access to a library of more than 17,000 workouts including live and on-demand classes. 

What makes iFIT different from Peloton is that its products are more affordable. For example, a treadmill from its premium NordicTrack brand starts at $1,899 while Peloton’s basic Tread package costs $2,495. Its more affordable pricing could help iFIT attract a larger customer base as well.

The company is growing super fast. Over the past twelve months revenue more than doubled to $1.7 billion, with 87% coming from sales of its fitness equipment and 13% from member subscriptions. But subscriptions boast gross margins of 88% versus a 35% margin for the hardware segment, so it’s very important for the company to increase its paying subscribers.

While iFIT is not profitable yet —  it reported an operating margin of -7.3% over the past 12 months — its operating cash flow margin is at a breakeven point. And this is more important as it shows that the company’s core operations are healthy.  

Commentary: iFIT wins because it’s a vertically integrated company that designs and develops its own software, content, and hardware to ensure these elements work in harmony across its portfolio of brands and products. And its lower prices that make its products more attractive to a larger customer base, could help it become more successful than Peloton in the future. 

Meanwhile, the global fitness equipment market is quite large and growing. It was an estimated $11.6 billion market in 2020 and is forecast to reach $14.8 billion by 2028, as companies create more customized workouts with community connections that people love. iFIT, as one of the leading names in the space, can be a big winner and probably one of Peloton’s biggest nightmares.

The company’s also reasonably valued. At the proposed midpoint price of $19.50 per share, iFIT will be valued at $6.1 billion and will trade at a P/S ratio of 3.5, while Peloton is currently trading at a P/S ratio of 6.2, quite a large premium. IFIT starts trading on Wednesday.

📫Originally posted as part of the Sunday Newsletter, the most digestible investing newsletter.

Join over 5,000 Millioners

Leave a Reply

Your email address will not be published.