Healthy Growth ?? Segment Snapshot: Connected Fitness

Connected Fitness combines traditional exercise equipment with digital features like instruction/guidance, personalization, motivation, belonging, accountability, fun, and diagnostics. After a meteoric rise during COVID-19, this segment fell back to earth over the past few years. Leading names like Peloton, iFit, Tonal, and Mirror have all gone through meaningful restructurings, resulting in significant changes to their executive teams, business models, and valuations. Let's check in and see where the dust has settled.

Demand

Consumer search interest in fitness equipment like stationary bikes, treadmills, ellipticals, rowers, and screens / mirrors?has declined or flattened since late 2021. This is not a surprise, as U.S. personal durable goods consumption has been flat / down since Q2 2021, driven by higher interest rates and flat / down disposable personal income. To demonstrate demand trends across D2C and B2B, let's compare the trajectories of two leaders in these segments, Peloton (D2C focus) and Technogym (B2B focus). Peloton has experienced double-digit revenue declines since 2021 (~30% decline over two years)?and is trying to return to growth while simultaneously substantially reducing costs to become profitable. Technogym had a 24% revenue decline in 2020 due to gym closures but otherwise generated?reasonable revenue growth while consistently delivering healthy profit margins.

Sources: Peloton Investor Presentation (May 2024); Technogym Financial Highlights

Deal Activity

Due to the vicissitudes of demand, especially D2C,?the past two years have been a period of relative inactivity. The ~$480M of deal value since mid-2022 is less than the $500M that Lululemon paid for Mirror in 2020 (RIP). The only two deals >$100M were EGYM's $225M raise, which was more about?its B2B software business, and Tonal's $130M raise, which was a rescue package.

Source: Healthy Growth Advisory - Health & Wellness Innovation Market Map

Competitive Landscape

Connected Fitness?is dominated by Peloton, iFit, and Bowflex, which account for ~86% of hardware revenue and ~88% of digital subscriptions (per Peloton's analysis below). The B2B market is still substantial, however, with >100K facilities buying equipment from Technogym, EGYM, and Precor. All of the leaders across D2C and B2B are multi-category, with offerings across multiple modalities of cardio as well as strength. Some single-category companies like Zwift, Tonal, and Tempo have raised substantial capital (all have raised >$300M), but they have yet to demonstrate the scale and outcomes of the multi-product leaders. Recent attempts at innovation have been focused on Strength and AR/VR.

Source: Peloton Investor Presentation (May 2024) ?

Multi-Category (D2C Focus)

• Peloton - Bikes, Treadmills, Rowers, and Digital App (Note:?$2.85B Enterprise Value; $2.7B Revenue (TTM); -$446M EBITDA (TTM); -4.2% Quarterly Revenue Growth (YoY)) ?
• iFit - Bikes, Treadmills, Rowers, Ellipticals, Strength, and Digital App (Note: Raised $200M of growth equity in 2019; postponed its IPO in 2021; sued by its growth equity investor in 2022; settled that lawsuit while raising $355M of growth equity in 2022) ?
• Bowflex (f.k.a. Nautilus) - Bikes, Treadmills, Ellipticals, Stair Climbers, Strength, and Digital App (Note: Filed for bankruptcy and acquired by?Johnson Health Tech for ~$38M?in 2024) ?
• Echelon -??Bikes, Treadmills, Rowers, Ellipticals, Stair Climbers, Strength, Screens/Mirrors, and Digital App (Note: Primarily focused on retailer partnerships including Walmart, Target, and Costco with 12K?retail doors) ?
• WaterRower - Bikes, Treadmills, Rowers, Strength, and Digital App

Multi-Category (B2B Focus) -?Technogym?(Note:?~80K fitness clubs; €0.8B Revenue and €0.15B Adjusted EBITDA in 2023); EGYM?(Note:?~18K clubs; $130M Revenue in 2022;?$225M raise in 2023); Precor?(Note:?~14K facilities; acquired by Peloton in 2020 for $420M)

Bikes - Zwift?(Note:?~$620M raised);?Blue Goji; MYXfitness (Note:?Acquired by?Beachbody in 2021);?SoulCycle?(Note:?Acquired by Equinox in 2011);?Volava;?Wahoo Fitness;?Wattbike

Rowers -?Hydrow;?Aviron;?Ergatta;?CityRow?(Note:?Acquired by WaterRower in 2024)

Strength -?Tonal (Note:?~$580M raised, including $130M in 2023); Tempo?(Note:?~$300M raised); Arena;?JAXJOX;?OxeFit;?Speede Fitness;?Kabata;?Proteus Motion;?ShapeLog;?Vitruvian; SLOMO

Screens/Mirrors -?Mirror (Note:?Acquired by Lululemon for $500M in 2020 and shut down in 2023);?Fiture; FORME; Vaha

Other -?Frame; Reform RX;?Quell;?Katalyst;?CLMBR; cultsport; Litesport;?Boxx; FightCamp

Key Strategic Questions

When it comes to figuring out where to place bets and what to do going forward, a few key strategic questions come to mind:

• How much more consolidation will we see before reaching a stable equilibrium? ?
• What is the right mix of hardware vs. software for long-term unit economics and company viability? Do investors' relative valuations of hardware vs. software accurately reflect future cash flows? ?
• How will the split between D2C and B2B unfold? ?
• What is the right mix of distribution channels? How does channel mix?impact product innovation, supply chain, organization structure, and unit economics? ?
• Are there other novel categories of equipment to create / connect? Are there cross-category bundling combinations yet to be realized? ?
• Are there novel 'killer' features still left to be created??Which existing features need to be optimized vs. satisficed? ?
• How are other fitness segments like gyms and boutique fitness responding to product innovation? ?
• Where are the unrealized international opportunities? ?
• Will healthcare systems ever prescribe exercise? What are the implications for product development, clinical research, partnerships, and organization structure?

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