Peloton’s Latest Workout: Putting Delivery Delays At The Back Of The Class

With the purchase of Precor, Peloton aims to curb manufacturing delays.

Peloton, the leading maker of connected fitness products, has moved to resolve its manufacturing and order backlog problem by acquiring Finland’s Precor for $420 million. Investors applauded the announcement to increase capacity, and drove Peloton’s stock to an all-time high, while marking a 400 percent year to date gain and $47 billion market cap.

In a statement, Peloton said it will add 625,000 square feet of domestic manufacturing space as well as a team of about 100 research and development employees.

“Peloton plans to produce connected fitness products in the U.S. before the end of the calendar year 2021,” a company statement said.  “By making fitness equipment closer to U.S. consumers, Peloton will be able to deliver connected fitness products to Members sooner.”

Precor President Rob Barker said he was “excited to combine our manufacturing expertise and more than 40 years of equipment innovations with Peloton’s award-winning workout experiences.”

Delivery Delays

Despite the popularity of its exercise bikes and treadmills, which can cost up to $4,300, Peloton has been criticized lately for needing as long as 2 to 3 months to deliver products; a lag that has angered customers or sent others looking for alternatives. “Increased manufacturing capacity should help alleviate the biggest impediment to growth,” KeyBanc Capital Markets analyst Ed Yruma said.

Even so, with gyms closed down and people spending more time at home, Peloton is still on track to book its first billion-dollar quarter, in spite of it all.

“Supply chain execution has remained Peloton’s biggest challenge since demand surged during COVID-19,” JP Morgan analyst Doug Anmuth wrote in a note to clients. “Bike wait times have remained elevated for months, as (Peloton) faced a perfect storm of sorts with much higher-than-expected demand for the new Bike+, port congestion, warehouse closures related to COVID-19, [and] both West Coast fires [and] hurricanes.”

Let The Good Times Roll

With the Precor purchase set to close early next year,  Peloton can shift its focus to building its user base while also ensuring it retains its existing 3.6 million clients who pay a monthly fee to do video linked workouts with professional trainers or celebrities.

“Given the high up-front cost of the hardware, it’s reasonable to assume that subscribers will stay loyal even once there’s a vaccine, allowing Peloton to keep winning in a post-pandemic world,” Motley Fool contributor Jon Quast wrote in reaction to the Precor deal.

Although Quast noted a 16 percent sequential decline in the average workouts per month metric in Peloton’s most recent quarter, he said the company’s 90+ percent retention rate was a more important metric.

In addition, the acquisition will open up the commercial fitness market, where Precor does most of its business, while Peloton users almost all do their workouts at home. Earlier this year, Precor announced that its own cloud-based fitness platform crossed the one billion workout milestone,  via 140,000 connected units in over 13,000 facilities.

“Under the Peloton umbrella, Precor plans to make the award-winning Peloton experience accessible to more people through its long-standing relationships with hotels, multifamily residences, and college and corporate campuses,” the companies said.  “[We] plan to make Peloton connected fitness products available to Precor’s broader network of commercial customers.”