China Consumer

Fitness test

China’s Peloton looks to push through its IPO

Peloton-w

Home gym: a Peloton bike

Peloton was one of the big winners from the pandemic. When all gyms were closed in 2020, fitness fans didn’t have a way of feeding their habit. Many purchased Peloton’s stationary bikes despite their hefty price tag. The company’s stock raced ahead as fast as its new customers, surging from about $23 pre-Covid to a high of nearly $160.

Then the lockdowns eased and more exercise options became available again. As people ditched their at-home workouts for the gym again, Peloton’s shares responded accordingly, dropping back to $29 this week.

Then at the beginning of February, amid accusations that it uses a harmful chemical solution to conceal rust and corrosion on its bikes, the company announced that CEO John Foley will be stepping down as part of a broader restructuring that would result in around 3,000 redundancies.

Despite the falling demand for home workout equipment, Peloton’s equivalent in China is pressing ahead with an initial public offering. Last Friday, Keep filed for an IPO in Hong Kong. Niudao Caijing, a financial blogger, reported that Keep’s founder Wang Ning has been pressured by investors including Softbank, Tencent and Goldman Sachs to go public. If the listing plan is successful, Keep will be the first of China’s online fitness companies to list.

To describe Keep as China’s Peloton is a bit of a misnomer. Founded in 2015, the fitness firm got its start as a mobile app for fitness content, with courses and livestreaming classes that were developed in-house or created by third parties such as influencers.

It wasn’t until 2019 that it started to make hardware selling its own brand of equipment such as bikes and treadmills. The equipment links back to the fitness apps in tracking and analysing activity, as well as adjusting workouts for a better experience.

Keep doesn’t have the upscale image of Peloton. Its products are much more affordable, including kneepads, gloves and skipping ropes. Its massage gun sells for Rmb699 ($110.58) for the most high-end model. The smart bike costs a lot more at Rmb4,899, but it’s still much cheaper than a Peloton bike.

Keep reported a major uptick in revenues during the pandemic, rising from Rmb663 million ($105 million) in 2019 to Rmb1.1 billion in 2020. The company claims that it now has more than 300 million registered members on its fitness app, the most in China. The growth has kept investors interested. In 2020 Keep completed a $330 million financing round led by SoftBank that put its valuation at around $2 billion.

The sales of private label products contributes more than half of its overall revenue in the first nine months of 2021. Membership subscriptions for its online fitness content (it charges Rmb178 for an annual membership pass) has shown consistent growth, accounting for 33% of its income during the same period. The rest mainly comes from advertising.

But the fitness unicorn is still bleeding cash. The IPO prospectus reveals a net loss of Rmb366 million in 2019, which narrowed to Rmb106 million in 2020. But in the first three quarters of 2021, losses spiked again to Rmb696 million.

“Like all internet firms, Keep is still at the stage of burning money to drive growth. As growth starts to slow, it could find it hard to break through, despite embarking on an IPO,” warns Entertainment Industry, an industry blog. The problem, it says, is that many other platforms are offering plenty of professionally produced fitness programme at no charge. A search on Xiaohongshu and Bilibili also throws up a variety of fitness videos from influencers, all costing nothing either.

Keep is going to have to work up a major sweat to keep hold of its existing members and upgrading them to higher-paying content. That could be a challenge.

“Many people are willing to spend tens of thousands of yuan for private training, but they are reluctant to spend even a few hundred yuan for an online subscription. The truth is a lot of people use Keep for cheap or free fitness programme. It is going to be difficult to get people to pay money for content,” reckoned Hanhai Guancha, a financial commentator.


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