Peloton+Precor: A Generational Bet
Precor delivers short-term tactical wins and long-term strategic upside
Peloton certainly ended its year with a bang.
This afternoon, the company announced that it acquired Precor, one of the largest equipment suppliers to the commercial segment. In its announcement, Peloton explained the acquisition rationale:
With the acquisition, Peloton plans to establish U.S. manufacturing capacity, boost research and development capabilities with Precor's highly-skilled team, and accelerate Peloton's penetration of the commercial market. Peloton plans to produce connected fitness products in the U.S. before the end of the calendar year 2021.
Additional manufacturing capacity—particularly in the U.S.—will help Peloton ameliorate operational issues that have contributed to a substantial backlog of undelivered equipment. And Precor’s commercial relationships will certainly accelerate Peloton’s go-to-market efforts. These tactical wins, however, belie a more strategic bet, one placed on the next generation of at-home buyers.
Precor: Peloton’s At-Home Bet
During a recent earnings call, Peloton CFO Jill Woodworth spoke to the company’s success with younger cohorts. In response to a Wall Street analyst's question, she noted:
I'm happy to report those under 35 are still the fastest-growing segment when you look at the data from the full-year fiscal 2020.
Shortly after these comments, Peloton highlighted long-term performance trends by age cohort. Of note, the 25-34 demographic almost doubled its share between FY14 and FY 2020. If this trend continues, then this customer segment will become the company’s largest during the current fiscal year.
Given this growth trajectory, one can see why the commercial market, specifically “gyms, hotels, apartments, [and] college campuses,” might prove particularly attractive. At these locations, Peloton will find a young, readily-accessible audience. At these locations, Peloton can introduce its hardware, content, and brand experiences to the otherwise uninitiated. At these locations, Peloton can—and will—find the next generation of at-home customers. Said differently, these locations will become key channels for Peloton’s upper and middle-funnel marketing efforts.
And the best part?
This marketing will occur through already-profitable commercial relationships. Thus, the commercial segment stands to provide both strategic and financial upside beyond that highlighted in today’s announcement.
Conclusion
Peloton will almost certainly realize short and medium-term benefits from its acquisition of Precor. That said, the acquisition’s strategic benefits will follow from Peloton’s enhanced ability to reach, and cultivate brand loyalty among, the next generation of at-home customers.