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Peloton’s (NASDAQ: $PTON) Evolution From Hardware to Content Creation Powerhouse

Peloton (NASDAQ: $PTON) offers professional training and world-class content to its members to create powerful and engaging training experiences for anybody, anywhere, and at any point in their fitness journey. 

The company has earned a unique selling point (USP) around offering multiple pieces of at-home gym equipment on a subscription basis. It combines cutting-edge technology, engaging lessons, and hardware to help you stay fit. 

Peloton became a Wall Street baby during the COVID lockdown and was quick to reach a billion-dollar milestone in no time. However, demand for the company’s connected fitness equipment plummeted after the initial surge during the pandemic. 

Peloton reported a net loss of $159.3 million in the last fiscal third-quarter earnings, compared to a loss of $408.5 million the previous year. The company reported a wider-than-expected reported loss for 2023. 

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Why is Peloton joining forces with TokTok?

The two industry giants (Peloton and TikTok) have joined forces to launch a dedicated co-branded fitness hub by the name #TikTokFitness Powered by Peloton.

The industry giant’s have collaborated in what is being called a first-time partnership where TikTok will present its users with custom content from Peloton. The hub will include creator partnerships, select live classes, celebrity collaborations, and original instructor series.

Apparently, the 1 billion active users on the Peloton platform served as the base for the collaboration between the fitness platform and the short-form mobile video leader. However, that’s not all. The company’s affluent customer base could also be a contributing factor to the merger. 

Peloton has an affluent customer base, with over 2.85 million connected fitness customers owning Peloton’s premium equipment. These customers are also the ones paying a premium of $40 per month for the services. 

The latest partnership will also mark the first time Peloton will produce custom social content for a partner outside of Peloton-owned channels. 

The TikTok Effect on Peloton

As per a statement from Brian Nagel, CFA at Oppenheimer & Co., the latest move behind the collaboration isn’t new. The company had recently announced their collaboration with Lulumelon, another large-scale apparel brand. 

However, another part of his statement suggested that things are changing. Peloton has largely been known as a hardware company, primarily associated with selling its bikes and content door to door. But now, we’re noticing that the company is largely signaling to its investors that it’s going to be more of a content organization. 

This statement can be largely connected with its latest event, where Peloton relaunched itself as a “for all” workout firm six months ago. The platform also introduced a tiered pricing model for its app. 

The adjustments were made to present Peloton as more than simply a bike company and to attract new consumers who might not have been able to buy the firm’s costly connected workout equipment but could be interested in a monthly subscription to its content. 

What’s in the collaboration for TikTok?

TikTok has been the market leader for short-format content. However, the platform has also suffered backlash due to inconsistency with its content and algorithm. The platform has lost its footing in several countries, like India, the US, the UK, and Australia, among others. 

The recent collaboration with Peloton could be a chance for the global short-format video leader to gain relevancy. With the introduction of dedicated content for its users, TikTok could potentially multiply its revenue while gaining credibility. 

What’s next for Peloton stock?

Peloton stock has increased by about 30% since the beginning of November 2023, aided by a strong end-of-year performance for the broader markets. 

However, shares are still down roughly 65% from their 52-week high, which was reached in February, as the firm suffered from expanding losses and a shrinking customer base. It is also implementing a long-term transition away from hardware and toward digital subscriptions.

While Peloton has made a huge step forward by making that change, it remains to be seen if it’s current efforts at creating meaningful partnerships will be able to move the needle enough to create significant incremental revenue and decrease the company’s losses. 

Investors should be cautious when contemplating Peloton as a viable portfolio contender until we see more real proof to the contrary.

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