Apple (NASDAQ: AAPL) recently unveiled Apple Fitness+ as the latest addition to its suite of subscription services. Demand for interactive fitness services is booming, as evidenced by Peloton Interactive‘s (NASDAQ: PTON) explosive growth over the last year. With a large installed base of active devices, Apple could gain traction quickly in this market. Should Peloton investors be concerned?
Apple joins a crowded market
Peloton still makes most of its money from selling exercise equipment. Subscription revenue made up 20% of its top line in fiscal 2020 (which ended June 30). This amount includes the $39 per month fee that users pay to access workout programs on their Peloton Bike or Tread. It also includes the $12.99 per month fee members pay to access workout programs through the Peloton digital app.
Peloton finished the last quarter with 1.09 million connected fitness subscriptions, up 113% year over year. Paid digital subscriptions through the app grew 210% year over year but only totaled 316,800.
The Peloton digital subscription is included with all connected fitness subscriptions made with a Peloton Bike or Tread. The app was initially offered as a supplement for Bike and Tread owners to access classes while away from their equipment. As of June 2020, 67% of connected fitness product users engaged with the Peloton app to supplement their workout routine.
Keep in mind that Peloton digital app subscriptions have grown rapidly despite the availability of Nike‘s (NYSE: NKE) Training Club app, which is free to use. Lululemon Athletica also offers exercise classes on its website, not to mention the content available on the Mirror platform that Lululemon recently acquired. There’s plenty of competition out there, and it hasn’t fazed Peloton.
As for Apple’s new offering, Fitness+ will cost $9.99 per month, or users can access it through the Apple One Premier plan, which bundles several services together, for $29.95 per month.
The main selling point for Fitness+ is that the service will include special integration features with the Apple Watch. In fact, Apple says Fitness+ was specifically designed for that wearable device. The app will intelligently incorporate metrics from Apple Watch to offer a “first-of-its-kind personalized workout experience.”
It’s a major advantage for Apple that Fitness+ will be integrated into every active device through the new Fitness app on the iPhone, which the company says it will also be available on iPad and Apple TV.
The company already has a massive built-in user base with more than 1.5 billion active devices around the world. If Peloton’s digital subscription growth is any indication, Fitness+ could be one of the more popular services when it launches later this year. It helps Apple that Fitness+ is slightly undercutting the subscription price of the Peloton app by a few dollars too.
Apple is tapping into a big opportunity. Peloton reported that more of its members