Wen 丨 Pole Business, Author 丨 Cindy, Editor 丨 Yang Ming
Internet fitness may not really be a good business.
Recently, a number of foreign media sources said that the star company known as "fitness industry Netflix" and "fitness industry Dell" - the American interactive fitness platform Peloton is considering selling, and Amazon and Nike are evaluating bids for the company. In addition, although Apple, Microsoft, Google, Meta and other companies have the ability to buy Peloton, there are not many interested buyers.
In the early days of the COVID-19 outbreak, Peloton became an investor darling. However, Peloton stock has been plummeting over the past few months due to product issues and slower performance growth, with its market value shrinking from nearly $50 billion to less than $10 billion. Such a bad trend made the market lose confidence in whether peloton's business model could continue, and began to pressure Peloton, asking the board to fire the CEO and consider selling the company.
Peloton share price movements
Peloton is in deep trouble, involved in the "selling" rumors is obviously not good news for domestic entrepreneurs - in the past few years, online fitness outlets have spawned countless domestic fitness apps, many people hope to replicate Peloton's successful model, in the scope of business is more and more like, including membership, hardware and sportswear and so on.
However, so far, none of them can reach the height of Peloton, nor have they successfully landed on the capital market, even if it is Keep, which has raised 8 rounds of financing within seven years, although it has been rumored to be listed for IPO many times, it is still not favored by the capital market because of the problems of commercialization and difficulty in profitability.
So when Peloton is about to "sell himself", the question arises: Is there any hope for the future for keepers? Even, is the Internet fitness field really a good business?
01, the Peloton myth collapsed
In an open letter to Peloton's board, Jason Aintabi, chief investment officer at Blackwells Capital LLC, who holds less than 5 percent of Peloton' shares, was unabashed:
"Peloton is worse off today than it was before [COVID-19], with high fixed costs, excess inventory, a lack of strategy dynamism, a sluggish workforce, disgruntled shareholders, and worse than all the companies in the NASDAQ 100."
Peloton did perform rather poorly on all fronts: Revenue in the first quarter of fiscal 2022 was $805 million, below market expectations, up just 6 percent year-over-year, and earnings growth reached a bottleneck. At the same time, net losses were as high as $376 million, compared to a net profit of $69.3 million in the year-ago quarter. On top of that, the number of active users is lower than expected.
From the perspective of stock prices, as of February 8, Beijing time, its stock price is less than 30 US dollars, and its market value is less than 10 billion US dollars. Compared with the peak of $160.72 per share at the end of 2020, with a market capitalization of about $50 billion, it has plunged by more than 80%. On January 24, Peloton was officially kicked out of the NASDAQ 100.
Peloton's bad things don't stop there. Peloton's confidential report shows that because many products have a long-term backlog in ports and warehouses, it will stop production of its flagship product, the treadmill "Tread", for six weeks, and will not produce the more expensive "Tread+" in fiscal year 2022 (as of the first half of 2022).
To save itself, Peloton has hired McKinsey to help cut costs. A leaked audio mentioned that Peloton executives had discussed 41 percent of the layoffs. In addition, in terms of retail stores, 15 of the 123 retail stores will be closed.
The superposition of multiple factors is only the appearance of Peloton's decline, and the deeper reason is that Peloton's business model and home track have always been considered unsustainable by the capital market.
In 2012, Peloton started out on spinning. In September 2019, Peloton was officially listed on the NASDAQ with an issue price of $29, which is regarded by the industry as the "first stock listed on smart fitness".
From the perspective of business model, Peloton is "content + intelligent hardware". In terms of hardware, mainly designing, manufacturing and selling bicycles and treadmills, prices range from $1495 to $4000. Since it started selling bikes in 2014, Peloton has sold more than 400,000 bikes. Hardware sales have become Peloton's most important monetization method.
In terms of content, Peloton has developed an app to introduce users with a fitness class subscription service, which members need to spend $39 per month with a bicycle or treadmill.
In addition to the closed-loop effect of hardware + software combination, Peloton is well versed in traffic marketing, and through marketing, the family becomes the best landing scene for fitness. In addition, in the Peloton interactive fitness mode, it stimulates the user's desire to socialize.
These combinations make it subvert the concept and business model of traditional home fitness products, have a strong user stickiness, and become the imitation object of many domestic peers. Many people even think that Peloton has found the intersection of "magic" between hardware, software and services, and is the new Apple in the Internet industry.
Despite this, for a long time, Peloton was not optimistic about the capital markets and investors. Until March 2020, the outbreak of the new crown epidemic in the United States forced the closure of gyms, restaurants, movie theaters and other places where people gathered, and its stock price began to soar from the lowest point of $17.7 per share to the highest point of $171.09 per share, nearly 10 times.
Peloton looked like it was about to explode in the internet fitness market, and in March 2021, an unexpected incident pushed Peloton to the forefront – Tread+ killed a child due to the height of the treadmill and the excessive gap between the running belt and the ground. Subsequently, the U.S. Consumer Product Safety Commission (CPSC) statement said that the treadmill has the risk of serious abrasions, fractures and death to children, and child consumers should stop using the product immediately.
The earnings report shows that Peloton has been losing money for a long time
Peloton was overwhelmed by the unexpected. Two months later, Peloton announced a recall of 12.5 treadmills worldwide, but Peloton has begun to fall from the "altar" and the stock price has begun to fall off a cliff.
At the same time, as the epidemic normalizes in the United States, people return to offline gyms, and the demand for Peloton continues to be weak. Peloton has since cut the price of a spinning bike from $1745 to $1495, but it barely worked.
As of 2021, the number of Peloton paid members is only about 2 million, compared with the number of streaming media giant Netflix's entire network subscriptions exceed 200 million, a difference of 100 times. Therefore, even if the Peloton user repurchase rate is as high as 96%, without sufficient user support, Peloton has always been difficult to achieve good profitability.
It can be seen that even if Peloton hardware, content, and services are doing very well, the United States is also the most developed country in the global sports and fitness industry, but when the epidemic dividend disappears, user growth slows down, and hardware equipment sales decline, the plight of hardware equipment sales cannot be changed, and the myth of Peloton collapses, which is difficult to avoid.
02, where do keeps want to be?
"Many people conclude that the peloton model has a large enough market space for the home fitness scene, but ignores that there is an essential difference between fitness users and fitness consumer users, and consumers who are willing to pay for fitness are always only a small proportion." Many observers believe that even if it is not acquired by large companies, Peloton will not be able to create new glory when it returns to its original point.
This means that for many Chinese peloton players, there is a need to rethink the future direction.
Many people believe that the domestic fitness industry is a huge gold mine full of potential. The data shows that from 2016 to 2021, the overall scale of the mainland fitness equipment market has shown a year-on-year growth trend. According to the forecast of China Commercial Industry Research Institute, the scale of the mainland fitness equipment market will reach 51.85 billion yuan in 2021.
Therefore, in the past few years, under the stimulation of Peloton, more than 300 fitness apps have been born in China, from a large number of vertical entrepreneurs such as Keep, Gollum, and Yueke Circle, to large manufacturers such as Xiaomi and Huawei, all of which have begun to plan layouts.
From the perspective of industry status, Keep can be regarded as a unicorn of the domestic track - within three months after the launch of 2015, Keep has gained millions of traffic, and in 2018 and 2019, Keep users are "hundreds of millions" to complete the user volume growth.
However, although the fast-growing Keep has the advantages of community atmosphere and online time, it is still just a "tool" without a clear profit model. In October 2019, Keep laid off employees and dissolved many business lines such as overseas, outdoor, AI, and running. Other fitness apps that are not as good as Keep have quickly closed down because of content homogenization and low user retention.
After the outbreak of the new crown epidemic, the home economy is hot, and Keep and other "resurrection". According to the 2020 China Home Fitness Short Report, within one month from January 25, 2020, the daily downloads of Keep, Daily Yoga, and Peppermint Health App have all achieved significant growth, with Keep having the highest increase of 478%.
In June 2020, Keep announced its overall profitability. However, with the stabilization and normalization of the epidemic, it is difficult to achieve rapid growth, and for Keep, which has accumulated 8 rounds of financing and a cumulative amount of 600 million US dollars, it has become a top priority to land on the capital market as soon as possible and give investors returns.
Since 2020, the market has repeatedly reported the news of Keep sprinting IPO. In March last year, it was reported that Keep would apply for a listing in the United States as soon as the second quarter; in July, it was suddenly reported that Keep canceled its listing plan; and by the end of 2021, it was rumored that Keep's IPO location was considering going to Hong Kong.
As of now, Keep has no latest listing news, and it is likely to have been stranded indefinitely. However, almost all views confirm that Keep is in desperate need of going public to meet its thirst for capital and commercial expansion.
From the perspective of business model, although Keep has repeatedly hoped to make profits through membership and value-added services, according to the data released by Keep in the NDR roadshow, Keep's revenue sources are three categories: advertising and others, membership and paid content, and fitness products - in 2020, Keep's total revenue is 1.1 billion yuan, of which fitness product revenue exceeds 600 million, membership and paid content revenue is 300 million yuan, and advertising revenue exceeds 100 million. Overall, Keep's current three main profit channels are very average.
In fact, although Keep is based on traffic, and then gradually launch the corresponding hardware products, but and Peloton's business path, commercial play is the same, but the current conversion rate of hardware products is too low. Since 2017, Keep has successively launched smart hardware products such as treadmills, spinning bikes, yoga mats, smart bracelets and other fitness equipment and related products - from the perspective of major e-commerce platforms, Keep has both a yoga mat of tens of yuan and a dynamic bicycle C1 Pro priced at 4999 yuan, which is currently evaluated by Jingdong with only about 500 articles, and keep hundreds of millions of user traffic has not formed an effective conversion.
Compared to Peloton, Keep user retention is too low. According to the "2019-2020 China Gym Market Development White Paper", during the epidemic prevention and control period, Keep's MAU increased by 20% year-on-year, but by the second half of 2020, the number of Keep monthly active activities fell back to the same period in 2019. Analysys' June 2021 data also shows that the keep 30-day user retention rate is only 20.85, far lower than the median 34.56% of sports and health apps.
Keep offline stores
In addition, according to the Keep Roadshow PPT, Keep has a cumulative user of up to 300 million, but the monthly active users are only 31 million, the number of monthly subscribers is 2.5 million, and the membership penetration rate is 8.2%. Compared with Peloton, which accounts for 36.5% of paying users when landing on the NASDAQ, Keep membership payment accounts for a very low proportion.
This is related to the Keep first free and postpaid business model, and it is also related to the main user groups. Peloton's target user group is the middle class, while the main user group of Keep is a young group of 16-25 years old, whether it is the consumption level and the cultivation of consumption stickiness, it is often inferior to the middle class.
Like Peloton, Keep has been declining by word of mouth. From the feedback of major social platforms, product quality, content is not good, automatic deduction, false delivery, after-sales service and other situations often occur, "Keep seven days free member experience, indicating that the automatic renewal service is opened, 7 days after the expiration of the automatic renewal service, just opened 7 days of free experience on the deduction ..." "Spent the money of the annual fee member, but did not feel the substantial use ..." These user views can see why the cumulative number of Keep users is as high as 300 million, the number of member users is less than three million - a big reason, In addition to the continuous "dissuasion" of users, it is also possible that the proportion of early adopters is too large.
Meanwhile, keep more free users are being shunted. Vertical apps focusing on daily yoga, such as Leke, FIT, Super Orangutan, Yue Running Circle, and Gollum, have all robbed Keep's paying users to varying degrees, and the number of offline stores of Leke and Super Orangutan is also far ahead of Keepland offline stores that spend a lot of manpower and material resources. The layout of Xiaomi, Huawei, etc. in smart products, its quality control supply capabilities and channel capabilities are difficult for Keep to have.
In order to monetize business, Keep has also entered various circles, such as the snack circle, and the categories introduced include protein bars, wafers, chicken, beef, whole wheat bread, konjac powder and so on. However, this is a more mature market than fitness equipment, and each category faces a large number of head brand competition. Whether it is brand power or product power, Keep does not have any advantages, so it has set off a wave so far.
Keep not doing the right thing may also be a helpless move. From the perspective of the general environment, China's fitness consumption habits are far from formed. According to the "2019 Global Sports and Fitness Economic Report", China's fitness population penetration rate in 2018 was only 0.8%, that is, among 100 people, only 0.8 people may have fitness consumption habits, while the penetration rate of first- and second-tier cities such as Beijing and Shanghai only reached about 5% to 6%. The U.S. sports industry is already one of the ten pillar industries of the U.S. economy, and its sports industry added value accounts for 3% of GDP every year.
Therefore, when the leaders of Internet fitness in China and the United States are deeply involved in various crises and dilemmas, is the Internet fitness market that looks very large like a mirror? If you want to really dig, what kind of solution ideas can you give?
This requires keepers to decide as soon as possible.