This top fitness stock competes with Peloton, but its business model is much better

The alarming struggle faced by peloton interactive Well advertised. The former fitness equipment maker and content company is now facing weak demand, declining sales and continued net losses. It’s hard to know whether things will get better.and Stock prices are currently falling 97% from peak price.

If you’re looking to get into the fitness industry, there may be another business to consider. Compared to Peloton, the company has a much better business model that has already been proven to work.what i’m talking about is planet fitness (PLNT 1.77%).

Physical stores remain the mainstream

While the rise of online shopping has certainly had a negative impact on brick-and-mortar retailers, the situation is less alarming for fitness studios. In the past four years alone, including a pandemic, inflationary pressures, and rising interest rates, Planet Fitness has opened more than 500 new gyms on a net basis. And as of December 31st, there were a total of 2,575 locations.

The business operates a franchise model, with only 256 stores actually owned by the company. This means there is an outside investor who provides startup capital and pays a fee for the right to open a Planet Fitness store. It is asset-light, freeing up corporate capital and leading to positive profit generation. free cash flow.

Another factor to consider is the size of Planet Fitness. The 2,575 gyms I mentioned earlier have a combined membership of 18.7 million. This allows the company to keep its lowest monthly membership fee at $10. This low price appeals to casual gym-goers who may only go a few times a month but don’t want to cancel because they’ve told themselves they’ll stick with their fitness plan. Additionally, Planet Fitness requires members to go to their home gym to cancel, which is a bit of a hassle.

This business model is better than Peloton. Peloton spends a lot of money on research and development and production capacity efforts to design and manufacture expensive hardware. In other words, it’s very capital intensive. While this may have worked during the height of the pandemic when demand was booming, it has led to financial weakness recently.

Peloton executives are relying on digital apps to move the company to a subscription model. However, the problem here is that businesses need to keep users engaged in order for them to remain members. If you no longer want to train regularly, you can cancel your membership with the tap of a button. This explains the high churn rate of 7.2%.

Look at the financial details

Peloton was founded in 2012. In other words, there was no better decade to grow your business than the majority of the 2010s. Access to cheap capital to fuel growth was easy, and the economy and stock market were strong. This bullish backdrop meant that Peloton didn’t need to generate profits to please investors.

Things are getting tougher now, so the market will probably favor companies with strong financials over the next decade. Planet Fitness definitely wins this battle head-to-head with Peloton.

Peloton reported an operating loss of $653 million for calendar year 2023 on total revenue of $2.7 billion. Planet Fitness, on the other hand, had operating income of $273 million on overall sales of $1.1 billion. Obviously he’s better at one. Profit and loss statement.

Therefore, fitness studio chains are a safer investment for those looking for exposure to the industry. We operate a consistently profitable and scalable business model. And if you look out over the next five years, I believe the company’s stock is much more likely to be a bigger winner.