How does Peloton make money?

Peloton makes most of its money from selling its bikes, but is partnering to expand subscriptions

Perhaps not surprisingly, one of the hardest hit industries during the pandemic were gyms. Like most businesses, they were forced to close their doors during the shutdown, but it was more than that: the idea of being around other sweaty people, breathing heavily after a workout, seemed uniquely unappealing: a poll from July 2020 found that only 20% of people said they’d feel comfortable going to a gym.

Things have changed since then as gyms have been allowed to reopen, and people now are going back. As of May, gym traffic was nearly back where it was in January in 2020, while interest in at-home fitness equipment peaked in April of last year, according data from Jefferies.

Yet, at least one at-home fitness company is not only still thriving but is actually seeing record numbers, even as the space is supposedly waning: Peloton, which saw a record amount of revenue in its most recent earnings report, growing 141% year-over-year to $1.26 billion. 

The company makes its money in two ways: first, by selling its internet-connected stationary bicycles and treadmills, and then also by selling its monthly membership fee, which allows users to access classes and additional features.

The vast majority of Peloton's revenue comes from that first stream; its Bikes, which are designed for cardio workouts, and its Bike+ devices, which are designed for cardio and strength, cost anywhere from $1,895 to $2,945. The company also released the Peloton Tread, which cost $2,495 in May;  however, the product has since been recalled "because the touchscreen console on the Tread can detach and fall, posing a risk of injury to consumers."

In all, this revenue stream, which the company calls "Connected Fitness Products," saw $1 billion, growing 140% year-over-year for 81% of total revenue for the quarter. 

The other 19% of revenue came from Peloton's "Subscriptions" revenue stream. The company offers two levels of membership: Digital Membership, which costs $12.99 per month, and All-Access Membership, which costs $39 per month.

"With the Digital Membership, use the Peloton App to access live and on-demand classes including cycling, Bootcamp, running, outdoor, strength, yoga and more. Train at home, at the gym or on the go with metrics and performance tracking to keep up motivation. See other Members taking the same class as you with our Here Now feature and motivate each other with high fives while you train," the company explains on its website.

"With the All-Access Membership, use your Bike or Tread to experience a full suite of metrics including cadence, resistance, distance, output and heart rate, plus detailed performance tracking. Chase other Members up the Leaderboard whether working out live or on-demand, and track your progress over time. Plus, get access to the Peloton App, included with your All-Access Membership."

The company now has 2.08 million subscribers, representing 135% year-over-year growth; of those, 891,000, of 42%, have a Digital Membership, a number that grew 404%.Of course, not everyone who buys a Peloton device has to pay for a subscription, and the majority currently don't: the company's total Members grew to over 5.4 million in Q3, meaning only 38 percent are paying.

Those who don't pay aren't able to access the company's workout library and live classes, but they can access to three pre-recorded classes and the Just Ride feature, which allows them to use the Bike and ride for as long as they want. Those metrics are recorded and can be saved to their workout history, and then shared to social media. 

As subscriptions still only make up a small portion of Peloton's revenue, the company seems to be planning ways to grow that side of its business. In June, the company launched its Corporate Wellness division, which allows organizations to offer subsidized access to Peloton Digital and All Access Memberships, as well as exclusive benefits on Connected Fitness products. 

In July, the company partnered with UnitedHealthcare, giving 4 million United members the option to access Peloton’s fitness classes via the Peloton App for free starting September 1. That will include either a 12-month subscription to a Peloton Digital Membership or a four-month waiver for a Peloton All-Access Membership. 

Founded in 2012, Peloton raised $1.9 billion before going public in 2019; it's now trading at $120.22 a share, well above its $29 IPO price.