Consumers often use Affirm’s no-interest payment plans to pay for Peloton equipment.
Courtesy Peloton
Payments company Affirm Holdings gave investors a post-IPO pop on Wednesday. It also provided more insight into another hot stock: Peloton Interactive.
The two companies have a symbiotic relationship, according to MKM Partners analyst Rohit Kulkarni. Consumers often use Affirm’s (ticker: AFRM) no-interest payment plans to pay for Peloton (PTON) equipment, such as its $1,895 base bike, he notes.
Kulkarni calls the interactive fitness firm Affirm’s largest customer, noting that Peloton accounted for 20% of Affirm’s revenue during fiscal-year 2019 and 28% of fiscal-year 2020 revenue. That figure hit 30% during the September quarter of fiscal 2021.
A Peloton representative didn’t immediately return a request from Barron’s seeking comment on Kulkarni’s estimates.
Based on Affirm’s IPO filings, and adding in some of his own assumptions, Kulkarni estimates that more than 60% of Peloton’s connected-fitness product sales occurred via Affirm during 2018.
The analyst believes that increased to about 75% of Peloton’s connected-fitness product sales in the 12 months ended this past September. Such financing, according to Kulkarni, has helped the company expand its total addressable market.
“Since 2014, the cohort of consumers who are 35 years old or below has nearly doubled from 16% of members in fiscal 2014 to 31% in fiscal 2020,” he wrote. “This has been the fastest growing age group at Peloton. And there has been a comparable trend for average annual household income. Households earning less than a $100,000 per year has grown from 29% of…members in fiscal 2014 to 46% in fiscal 2020.”
Kulkarni estimates Peloton pays approximately 10% to 11% per transaction to Affirm, given the company’s overall take rate, which he calculates as net revenue divided by gross merchandise value, has been between 10% and 12%.
“In other words, we estimate Peloton recognizes ~$1,660 to $1,680 in revenues for every Bike sold at $1,895 list price or ~$1,995 to $2,025 for prior/higher $2,245 list price,” he wrote.
Kulkarni has a Neutral rating on Peloton stock, with a $110 fair-value estimate. That stands in contrast to the mean price target listed by FactSet of $150.48. Of the 27 analysts FactSet lists, 85% have Buy or equivalent ratings on the stock.
Peloton stock was up 1.8%, at $170.42, in recent trading, while the S&P 500 index was up 0.2%. Affirm stock was up 35.2%, at $131.50.
Write to Connor Smith at [email protected]
