Author| Zhang Chao Editor| Luo Lijuan
"Home fitness", once very popular, is now undergoing a severe commercial test.
According to the figures released by Keep, the largest online fitness platform in China, the company's revenue in the first three quarters from 2019 to 2021 achieved steady growth, at 396 million yuan, 636 million yuan and 638 million yuan respectively; but the losses could not be stopped, and even had a tendency to expand, with adjusted net losses of 366 million yuan, 106 million yuan and 695 million yuan during the period.
Keep a list of key financial facts
Far away on the other side of the ocean, Peloton, an online fitness platform known as "Fitness Netflix" and "Fitness Dell", is also in a profit dilemma. Its revenue for the second quarter of fiscal 2022 (October 1, 2021 - December 31, 2021) increased by 6% year-on-year to $1.13 billion, while net loss was $439 million, compared to a net profit of $63.6 million for the same period last year.
Peloton was once regarded as a typical success story of streaming media technology integration of fitness equipment, when it was listed in 2019, the capital market valued it at more than $8 billion, and its peak market value once soared to $50 billion, and now the market value is back to the initial level of listing. With the normalization of the epidemic in Europe and the United States, Peloton began to go downhill, laying off employees, leaving executives, changing CEOs, and even repeatedly spreading the news of "selling himself".
In the past few years, under the dual role of the new crown epidemic and Internet technology, home fitness outlets have emerged, and a number of companies have entered the wind and want to replicate the glory of Peloton.
In terms of business model, including hardware companies such as FITURE and Merrick, and cross-border players such as Xiaomi, most of them are similar to Peloton - hardware hits the market + content to do value-added services, and extends the sales chain. The online platform company Keep has also cut into the hardware market after the content start.
Industry disruptor Peloton's profitability and keeping losses from followers have left the outside world worried about the prospects for commercialization of the entire market. Can't the wind blow home fitness? Does the "hardware product + platform content" model not work?
Business monetization still depends on hardware
Peloton, founded in 2012, is a fitness technology company integrating software and hardware.
At the beginning of the business, the company's founder John Foley did not want to start from the fitness hardware, after all, BGM music and sales background, making him like a "layman" when studying hardware. But he found that "most of the hardware products on the market are too bad to be cool at all", and finally had to go on their own, starting with the bicycle products they loved.
Peloton was born to break the limitations of users' fitness time and location, which requires the development of software platforms that allow fitness enthusiasts to consume fitness "content" at home and experience the joy of fitness without the limitations of time and space.
The business model of "hardware product + platform content" determines that product is king and content is king. In order to allow users to have a better consumer experience and platform stickiness, Peloton not only has to have high-quality fitness equipment, but also has to reserve a variety of fitness content, which puts forward requirements for its content production capabilities.
None of the employees on Peloton's technical team at the time had a media background, and the company didn't have the money to build a streaming studio. Forced to be helpless, Peloton could only harden his scalp, and built a "fitness live room" with curtains and spotlights in the corner of the office, opening the door to self-made fitness content.
The two embarrassing situations completely broke John Foley's original concept, and peloton became a "fitness class Netflix" and "fitness class Dale", successfully subverting the entire fitness industry, fully reducing the threshold of mass fitness, making fitness time and space no longer limited, and riding the dust in the home fitness market.
Peloton's business model (Image source: Essence Securities)
Some people commented that Peloton integrates the business model of Apple, Netflix, Costco and other well-known enterprises: in hardware products, learning Apple not only controls the number of SKUs, but also protects the ultimate user experience; in streaming media content, learn from Netflix to make the fitness content library bigger and stronger to enhance competitive advantage; in business realization, learn Costco to use subscription membership to ensure long-term stable income.
However, from the perspective of the final revenue structure, Peloton's main revenue is still contributed by hardware, and the subscription membership income accounts for less than half. In the second quarter of fiscal 2022, the company's revenue from related fitness products reached $796 million, accounting for 70.24% of the quarter's revenue; if the cycle is extended, the entire first half of fiscal 2022, this part of the revenue accounted for 66.91% of the total revenue, which is the company's absolute revenue engine.
A glance at Peloton's fiscal 2022 revenue
Turning the focus to the Chinese market, even if Keep is an online fitness platform to start, the revenue structure is more diversified, with the past two years began to cut into the field of fitness equipment, hardware products supported half of the company's revenue.
According to the prospectus, Keep's revenue is currently mainly composed of three parts: private label products, membership subscriptions and online paid content, advertising and other services. For the nine months ended September 30, 2021, private label product revenue amounted to $639 million, representing 55.1% of total revenue for the period, compared to 58.3% in the same period last year.
Keep revenue for the first nine months of 2019, 2020 and 2021 at a glance
According to the category, Keep's own brand goods cover four categories: smart fitness equipment, fitness equipment, clothing and food, mainly through self-operated malls and third-party e-commerce platforms and other channels.
In a way, private label goods are not only a company revenue engine, but also a traffic booster.
After receiving the traffic brought by the online fitness content, Keep will also bind the corresponding content services in the process of selling its own brand products, so as to direct the traffic to the online fitness content again.
All-weather technology learned that Keep home fitness equipment is hoping to establish a more complete sports technology closed loop by covering more life scenarios of sports people, and complete the transformation from App to sports technology platform by connecting multi-dimensional scenes.
Business targeting "non-fitness users"
Peloton and Keep are both companies that have stepped on the outlet of home fitness and are also companies that serve the younger generation of consumers.
Interestingly, many of these consumers are also a group of people who have experienced the "running" of offline gym closure, why do they still pay for thousands or tens of thousands of yuan of home fitness equipment?
Taking Peloton as an example, the company mainly relies on Tread+ tread+ treadmills and exercise bikes to open up the market. According to the New York Times, Peloton sold a total of 577,000 bikes and treadmills by 2019. But the price of these two products is not cheap.
Peloton bikes and treadmills have sold for as much as $1,745 and $2,845 in the U.S.; starting January 31 this year, the company has also asked customers to pay an additional $250 for the delivery and installation of their bikes and an additional $350 for their treadmills; not counting the $39.99 monthly subscription membership fee that users need to pay.
Chinese consumers are no less expensive at home with fitness equipment.
According to the data released by THE HOME TECHNOLOGY FITNESS BRAND AND THE SMART FITNESS MIRROR PROVIDER, during the Double 11 period in 2021, its trading volume on Tmall and Jingdong increased by 1525% year-on-year, and increased by 287% year-on-month to 618, winning the double crown of the transaction volume of the intelligent fitness mirror category of Tmall and Jingdong platforms.
According to the FITURE Slim Tmall flagship store, the company's current fitness magic mirrors include mini version, flagship version and exclusive version, with a price of 2999 yuan, 3899 yuan and 7800 yuan respectively.
FITURE Smart Fitness Magic Mirror
FITURE partners revealed to all-weather technology that last year, the sales of fitness mirrors of Double 11 Company exceeded the 10,000 mark, "this achievement is equivalent to the sales level of Peloton in the fourth year, and THE FITNESS fitness mirrors have only been listed for one year", and the months after (Double 11) have basically maintained this sales level, and even show signs of rising.
It is worth mentioning that in the Chinese market, high-end products with more diverse services are more popular with consumers than the lower-priced entry-level FIT fitness mirrors.
FITURE has also jumped from an anonymous company to billions in just 2 years (founded in 2019). In April 2021, after completing the B round of 300 million financing, FITURE was valued at more than one billion US dollars, becoming the fastest growing unicorn company in the domestic fitness field.
What kind of people "raised" Peloton, which was once worth more than $50 billion, and FIWATCH, which is now valued at more than a billion DOLLARs?
Li Yu, investment director of Qingtong Capital, told All-Weather Technology that at this stage, the demand for exercise is mainly divided into two types, one is the high-order needs of professional fitness people, weight loss, fat loss, shaping, muscle gain; the other is the basic needs of small white users, that is, the demands of healthy bodies, and healthy diet, healthy sleep, become a configuration of healthy life.
According to Li Yu's observation, at this stage, most of the domestic users' fitness needs are stuck in the basic demand stage, "the characteristics of this demand are that the user's exercise time is fragmented, there is no fixed time, may think of it will move", which provides space for the growth of home fitness companies.
Since most domestic companies have not disclosed financial data, they can only use Keep as a reference here. As a leader in the domestic online fitness industry, Keep users as a whole are mainly young and strong purchasing power, and 74.1% of the monthly active users of the platform in 2021 are under the age of 30, and 52.2% are from China's first-tier, new first-tier and second-tier cities.
From the perspective of frequency of use, this group of people also confirmed Li Yu's statement, only in the "thought of moving", not even a standard "fitness user", more of a "fitness white".
In 2021, the Keep platform reached 34.4 million monthly active users, and a total of about 1.7 billion exercises were recorded throughout the year. If calculated as active users, the number of exercises per user is about 1 time a week; if the calculation range is expanded to more regular users, the frequency will be reduced.
The number of exercises by users of the main fitness use platform in China
According to the report of CCHI Consulting, Keep is the number one online fitness platform in China with the number of exercises, and other platforms have a large gap with Keep. It is foreseeable that the frequency of exercise in the entire Chinese home fitness group is quite low, and they may have purchased fitness products and ended up not taking full advantage of it.
The inspiration of "fitness class Netflix"
Peloton sells itself, keeps losses, and the frequency of home fitness is low, does it mean that the home fitness market is in jeopardy?
The answer is no.
Li Yu, investment director of Qingtong Capital, believes that home fitness is a blue ocean market, and this demand already exists, especially after the epidemic, health awareness has been stimulated.
"If you use course content and somatosensory technology to serve less than 10% of the population at this stage, the market will be very narrow, there is no extremely self-disciplined crowd, and it is difficult to run out of the home scene." Li Yu stressed that home fitness should focus on the needs of more than 90% of small white users, that is, the demands of healthy bodies.
At present, the most common mode of undertaking this part of the demand is "hardware product + platform content", that is, with intelligent hardware such as intelligent fitness mirrors and intelligent treadmills as the carrier, supplemented by rich platform course content, to reduce the fitness threshold and meet personalized and efficient fitness needs.
According to the "China Intelligent Fitness Industry Research Report" released by iResearch, China's intelligent sports and fitness market is in a stage of rapid development, and the market size has reached about 10 billion yuan in 2019; it is expected that the intelligent fitness market size will exceed about 82 billion yuan in 2025, and the compound growth rate from 2021 to 2025 is expected to reach 46%. With the richness of smart fitness hardware course content and the characteristics of intelligent interaction, it is expected that the penetration rate of smart fitness hardware in Chinese households will grow rapidly.
Image source: iResearch
In fact, even if the price of fitness hardware is several thousand yuan, as long as it can accurately cut the user's pain points, the user can accept it, and even the sinking market demand can be stimulated.
FITURE partner revealed to all-weather technology that the company's products have been sold to 1600 districts and counties across the country, first-tier cities to solve the user's fitness needs anytime and anywhere, fourth- and fifth-tier cities to solve the user's high-end courses, high-quality teacher resources lack of pain points, the future company may lay more sales channels in the sinking market.
Looking at the current participants in intelligent sports and fitness hardware equipment, they can be mainly divided into three categories: one is represented by FITURE and Merrick, cutting into the market through intelligent fitness hardware and going deep into the family life scene; one is an Internet sports technology enterprise based on Keep, expanding from the online platform to the field of fitness hardware; and the other is the Internet hardware enterprise with Xiaomi as the typical, cross-border development of intelligent fitness hardware.
In the final analysis, everyone wants to copy the glory of Peloton and make it "China's Peloton".
But its ups and downs in the development path has also sounded the alarm for Chinese enterprises. The above-mentioned FITURE partner pointed out to the all-weather technology analysis that Peloton's biggest mistake is to misjudge the surge in demand caused by the epidemic as normal growth, and the company has made radical measures such as large-scale "recruitment" and acquisition of equipment factories; in addition, Peloton wants to quickly expand the product line and achieve a variety of functions through a fitness bicycle product, in fact, it lacks relevant hardware genes, and even subverts the things that were done right in the past, which is not worth the loss.
"All sports and fitness companies should learn the lessons of Peloton, rationally judge market demand and user needs; put product power first, and think clearly about the user pain points that the product solves." FITURE partner said.
From Keep's prospectus, it should also be realized that if the company does not focus on product power, it will invest too much cost in advertising and marketing, and it will be difficult to achieve profitability in the end. Since 2019, sales and marketing expenses have been Keep's largest expenditures; although the proportion of investment in this part has declined in 2020, in order to enhance customer awareness, improve brand awareness and expand user base, Keep's expenditure in this part in the first nine months of 2021 reached 818 million yuan, a significant year-on-year increase of 342.1%, accounting for 70.6% of total revenue, which seriously affected the company's profitability plan.
Keep the cost at a glance
Returning to the fitness hardware market, Li Yu observed the needs of consumers and found that the current running product market has the highest level of education and the most user preference, so Chinese companies still have to focus on the product itself when doing sports and fitness equipment, such as from the dimensions of safety, noise, size, aesthetics and so on.
The market opportunity for home fitness is there, and it can be seen and touched. But to become "China's Peroton", the first thing companies have to do is to be able to stay in the user's living room for a long time.