Hacker News Reader

Comment by tempsy | Hacker News Reader

It really makes we wonder how we could be on the verge of a recession when companies like this become successful? Maybe I'm just too cheap to ever buy something like this but it feels like a mass marketed luxury good that requires a decent level of consumer confidence to have succeeded.

View on HN

I bought one. I like it because it's pretty high quality, I didn't have to pay cash ( using Affirm it's 62/mo /39 months), and I was able to test ride 2 of them for free ( apartment complex has a gym with one, but very hard to get a time to ride ). My girlfriend likes it because it saves tons of time compared to driving to e.g. SoulCycle or a spin class and they have nice social features like a competition ladder. But I don't do the classes, I just use it for the free ride.I try to set new PRs in terms of wattage, peak HR etc. Edit: I also like that you can sync your heart rate/ distance to Apple Health and it counts towards your rings in Apple Activity/Apple Watch.

I use the one at our gym and I do like it. I have a decent carbon bike and an indoor trainer that I use Zwift with. However I do like the peloton for the classes/instructors. The machine itself is nice and the ride is smooth. The screen is amazing. It pairs with ANT HRMs and Bluetooth earphones. It’s nice to visually see the metrics and have target numbers. Missing ERG is a problem but not a huge one. I don’t think it’s a fair comparison with juicero. Although I’d admit I won’t pay for it - I’m not the target market. I’m primarily an outdoor cyclist.

"how can we be headed for a recession when my janitor just bought a second house?"

Absolutely this. A bubble doesn't look like one until it pops, so you can't just say "everyone's buying $2000 spin bikes, everything must be fine." For starters, Peloton does a majority of its sales through Affirm and other consumer financing instruments, and books them as revenue. It's more accurate to say "everyone is buying $2000 spin bikes using 30% APR installment loans."

In the risks section, Peloton says that their revenue could decline due to changes in credit markets and decisions made by credit providers - a.k.a. if a bunch of people start to default on their expensive luxuries.

"In the future, we cannot be assured that third-party financing providers will continue to provide consumers with access to credit or that available credit limits will not be reduced. Such restrictions or reductions in the availability of consumer credit, or the loss of our relationship with our current financing partners, could have an adverse effect on our business, financial conditions, and operating results."

The Affirm loan product for peloton is 0% only (with no late fees in any circumstance).

Cheap credit will not last forever..

Tell that to furniture stores that have had 5+ years of no interest financing forever. Of course they raise the prices to pay for the “free financing”.

Instead of $1,995 up front, it's $3,783 over 39 months due to a subscription contract bundled with the financing. This is a very clever way to claim "no interest" but actually charge 27% APR. There are absolutely customers who buy this but can't afford it.

If you didn’t buy the bike on financing you’d still have to pay the subscription if you wanted to use it as intended. Not sure why you’d consider the subscription an interest-like fee. The only criticism is if you stopped using the bike before you paid it off then yes you would be paying subscription fees for all the remaining months you never used.

For what it’s worth, according to the S-1 they stopped bundling the subscription as part of the bike financing in 2018, so people are just financing the bike alone now.

That is some interesting SaaS+hardware financial wizardry.

As you said, very clever.

And this is no different than the typical phone financing plan.

You pay for the phone over 24 months but they “bundle” the cost of an additional line. You would pay for the cost of the line over 24 months but no one would call that “interest”. You could buy the phone outright and just use it over WiFi just like you can use a Peleton without the subscription. But, in both cases, it reduces the functionality of the product.

In both the case of the phone and the Peloton, it allows someone who can't afford the item to pay for it on an installment basis. On an individual level that access to credit might be useful, but it's another form of leverage which is not always a great indicator.

In fact, if people are making use of that option unusually often, economists get worried. Prior to a recession, consumers often feel more confident (and take on more financial obligations) than they have the resources to keep up with.

Phone is very different IMO. I always lease my phone not because I can’t afford to buy it outright but because the upgrade cycle is so short (a year with iPhones) that if you are someone who likes having a new phone then it makes more sense to just lease one and upgrade whenever you want than to buy it and deal with the hassle of selling it later on.

The equation has changed more recently as smartphone innovation has really slowed and very incremental. In either case you can just keep you phone for 18 mo and buy it outright.

Leasing is different than what the phone companies are doing now. They just take the retail price of the phone and divide it over 24 or 36 months if you want to cancel your included service contract early, you pay off the remaining balance of your phone. They often allow trade ins or upgrades as an option, but there is functionally no different from 0% financing 24 months with a phone + service plan than 0% financing + subscription with Peleton.

I have a 128GB iPhone 6s from 2015 that my son is still using and will at least get the current version of iOS through September 2020. Phones have been “good enough” since the 2013 iPhone 5s.

I could have easily afforded to drop $800 on my iPhone, but why would I if it would cost the same over 24 months?

People have been getting “free phones” with a contract at least since the mid 90s when I was selling them at Radio Shack.

When is Affirm going public? I want to invest in that.

If you want exposure to similar businesses look at Afterpay or Sezzle...both publicly traded already.

That's exactly why bubbles form and lead to economic cycles: people get too confident and overextend themselves.

In this particular cycle, more companies seem to be using this profitable business model: charge huge margins for your product and sell it on credit. Bikes, SUVs, higher education (phones, too, but that's not new). When the economy hits a blip -- say, due to a trade war -- people start losing their jobs, default on the loans, and things spiral down.

(To be clear, I'm not saying it will happen soon. It might, and probably will take years and be a mild pop.)

> people get too confident and overextend themselves.

It sounds like you are stereotyping Peloton purchasers into one group, then assuming that the majority of them can't afford nice things.

What if you look at it from the flip side and say "people buying $2.4k in-house bikes have a lot of money and all is well in the world"?

People with lots of money don't buy on credit because the credit is expensive. So it really comes down to whether most purchases are on credit or not. US consumer debt peaked in 2008/9, dropped until 2014 and started rising again - it's now higher than 2008/9.

https://www.marketwatch.com/story/us-consumer-debt-is-now-br...

> People with lots of money don't buy on credit

Interesting, but lots of wealthy people do finance their purchases, especially if they are active investors.

Someone elsewhere in the thread mentioned that the Affirm rate is de-facto 0% if you factor in the subscription for the full-term. Taking that as fact (apparently it's changed now, so can't 100% confirm), you'd have to be pretty anti-debt (or lacking in cashflow) to pay in full on that rather than earn interest on the balance for 3 years if you intended to book the subscription anyway.

> Interesting, but lots of wealthy people do finance their purchases, especially if they are active investors.

The wealthy borrow in order to get tax-advantaged liquidity (borrowing against, instead of selling their securities which attracts immediate tax obligations). I'm also certain the wealthy are not borrowing at 27% APR - they'll likely get a 5% APR loan from a bank and use a small fraction of it to buy the Peloton bike in cash.

> It sounds like you are stereotyping Peloton purchasers into one group, then assuming that the majority of them can't afford nice things.

I did not mean to do that. In fact I was on the brink of deleting my comment, to avoid this exact misunderstanding.

I wanted to point out that getting expensive things on credit is risky for most people who cannot afford to buy them straight out.

Edit: This isn't a commentary on Peloton specifically, but all of the S-1 posts we've been seeing on HN recently.

I wouldn't interpret this behavior as success per se. I think a significant motivating factor for going public now would be to provide liquidity for your existing investors (and yourself as the founder) before a recession hits.

If you've had significant capital tied up in a company and you're worried a recession is on the horizon, then this is a great time to push your company to go public. If you wait much longer then you risk either:

1. Going public in a recession and losing some of your potential gains.

2. Waiting an unknown amount of time for the economy to rebound and to pull your cash out then. This assumes the company weathered the recession well AND given you the same or better gains than investing in something else during that time.

TL;DR: Going public now is a much safer time for investors to divest than closer to or after the coming recession.

Do folks who profess not understanding why something is successful ever use such data to improve their outlook?

They became successful in the bull market. Markets and debt cycles don't act like sine waves. They build up to a peak, and then they fall dramatically, then they build up again, and they fall.

Being "on the verge of a recession" means nothing. There have been people constantly predicting the next recession since 2011. And there was zero talk of an economic downturn in 2007.

That's not true. The yield curve inverted in 2006, people talked about recession for a while, then the general conclusion was that 'it's different this time', and right after everyone forgot about the inversion, the recession hit.

But don't worry, it's different this time. ;)

The company is selling the bikes and treadmills at a 43% gross margin. This company somehow sells its bicycles at a higher gross margin than Apple(38%). How!

Do economic models distinguish consumer confidence from ignorance?

luxury design is well stablished field. And it is not that impacted by world crisis and recession.

The trick here is fooling common investors into into without realizing it is a luxury market.

Basically, there is a small but lucrative market. You know that you have to milk it while you can and move on.

This kind of startup, exploit this small market mostly to inflate the numbers. Probably they already have 100% of their real market cap, but they will claim that they can still expand to billions of people that pay $5/mo gyms all around the world and only increase their growth (when they very might be already at 100% and realistically their future growth is zero ...or until the pile of money they get runs out)

...a funny exercise: search for the first anecdotes from the first clients of juicero here on HN ;)

On the other hand I wonder what effect easily accessible credit cards have on overall sales for products like this.

On a personal level it would be a stretch for me to spend $2200 when I could get a used airdyne and an ipad for less than half.

Companies have been offering “0% financing” for decades regardless of economic conditions - see furniture stores and more recently phone companies.

I’ll probably end up buying a Mid range NordicTrack stationary bike ($1800) within the next year to go along with my NordicTrack treadmill and elliptical. I don’t currently subscribe to IFIT, but I might seeing that I could potentially use it across three pieces of equipment.

The IFIt modules are an optional piece for the elliptical and treadmill and I believe it is built into the elliptical.

As far as cost, between the cardio equipment I have (and plan on purchasing), the kettlebells, weight bench, weight bars, tv, wall mount, AppleTV, etc, by the time all is said and done, I will have spent close to 8 grand.

It’s well worth it for the convenience of just being able to go to the spare bedroom and workout anytime that we want to while catching up on TV or in my case watching technical videos without having to go through the ceremony of going to the gym.

On the surface this is basically the Juicero of fitness equipment. If you want a good piece of workout equipment, buy a Concept2 erg. If you want a bike, you can get a carbon-frame bike for the same amount of money and then just get a trainer for it. Ostensibly there is zero reason for this to exist.

The one argument in its favor is that youth sports are usually very heavily subsidized by masters sports. So if you weren't on a varsity sports team in high school or college and didn't learn how to work out properly, then it's easily 5x more expensive to do so as an adult. So maybe there is some value in having someone to teach you how to do basic cardio.

> Ostensibly there is zero reason for this to exist.

It's a lot more convenient to exercise in your living room than go outside or go to the gym.

I thought Guitar Hero was stupid and people should just buy a guitar, but people loved it.

GH is $50, not $2000

It's way too expensive for me and I have no interest in doing cardio indoors, but I think you're missing out on the value of the digital side of the product.

I think exercise bikes and treadmills are dreadfully boring, but what Peloton offers is exactly targeted at that problem. Adding an array of things to do and a social aspect has to be a big deal, and if that's all packaged together in a high end package that "just works", and works really well - that seems like a winning formula.

There's a lot of fitness subscription services out there, but there's more money to be made on hardware in general. So as long as there's a market for people to pay two grand for a stationary bike and whatever dollars a month for a subscription, it's a winning business model. I'm guessing it stacks up against the SoulCycles of the world very nicely.

I can watch Netflix or YouTube (exercise motivation vids or general interest vids) on my tablet to keep me busy while I stationary bike.

A spin bike is not really the same thing as a bike on a trainer because of the social aspect, and the classes. And the cost of a Peloton and the subscription is less than traditional spin classes.

I am surprised that people are willing to spend 2x-10x as much as competing products when you look at the total cost.

Zwift adds the social to a bike on a trainer. The big advantage of a bike on a trainer is that it's the bike you will use on the road so the fit etc is exactly the same when you do get out (I realise there's a huge market for indoor only)

https://en.m.wikipedia.org/wiki/Zwift

It is also a disadvantage. The peloton bike is heavier (IE sturdier), has more grip options, takes up less floor space (the peloton is about a foot shorter than my actual bike, not including any potential trainer that would be required), is much more easily adjustable (if multiple people are using it), and is purpose built for the function it serves. I only have experience with one type of trainer, so this may be trainer dependent, but the peloton is also much quieter than the type of trainer I've previously used.

Not to mention that when I want to go out and ride I don't need to detach my bike from the trainer, or when I want to get a workout I don't need to attach my bike to the trainer. As somebody that is primarily a bike commuter, the accessibility alone is worth having 2 bikes. And if you are going to have 2 bikes, why not buy an indoor bike that is specialized for the task.

Isn’t a big assumption that people actual desire “to be social”? I’m a former part time fitness instructor who spent 15 years in gyms all across the metro area, only ran outside for races with friends, and they were my social circle, but now as an older married man in my mid 40s, I have no interest in the gym scene. I like having a home gym with cardio equipment and weights.

But as far as spending more than the functional equivalent, do you have the cheapest house that would give you shelter? The cheapest car? The cheapest phone?

If you have no desire to be social you would most likely not buy the internet connected and subscription bundled spin bike, and get a much cheaper bike without those features. Or by a better quality one with a power meter for less money.

There is a difference between interacting with people and being around people. For instance, you can enjoy the camaraderie of other people doing the same thing and not actually having to engage in meaningless smalltalk around socially acceptable safe non controversial topics with people you don’t have anything in common with.

I loved teaching classes with 50+ people and was completely comfortable. But I hate interacting with large groups in more social settings.

This is nothing like Juicero.

Peloton addresses two real needs in the exercise marketplace: home-based classes, and high-quality exercise machines. It simply combined both into one product.

There is huge demand for the former, especially from white-collar workers with high demands on their free time, and a a fair amount of demand for the latter.

At $2000, a Peloton bike is $1000 to $2000 cheaper than the cheapest carbon-frame bike I could find on Google, and more than $3000 cheaper than a racing or tri-bike. For indoor use, you'd also need a trainer, adding another $600-$2000 to the cost (depending on the trainer you get).

Generally, the people I know that have carbon fiber frames also have several other bikes, each for a different niche, and the Peloton would slot right into the indoor spin use case.

Bikes are usually 20 - 35% off when the next years models come out, which e.g. is this week for Cannondale. You can easily get a carbon Synapse for less than 2K from almost any bike shop that sells them, or even REI. It’s an endurance bike, but for doing low cardio you wouldn’t necessarily want a race bike anyway.

You can easily get a carbon Synapse for less than 2K from almost any bike shop that sells them, or even REI.

True, REI has the Synapse on sale for $1700 right now not including delivery. Once you add a trainer of the equivalent functionality as the Peloton trainer, you're looking at $2500 spent. Add in a screen, and you're looking at $2700 for a small screen or $3500 for a similar-size screen as on the Peloton.

But when you decide to join your local cycling club or even get outside for a spin, you are good to go with the Cannondale ;) ... not so much with your stationary Peloton. Also, the highest priced CycleOps trainer on REI's site right now is $420. So $2120 with trainer...as for the screen, most people buying carbon road bikes and trainers probably already have a working flat-screen to spare.

There's absolutely no reason to buy an expensive fast stationary bike. It's an oxymoron.

> There is huge demand for [home-based classes], especially from white-collar workers with high demands on their free time

I suspect people are overestimating this part of Peloton's market. All the people I know who spin value being a part of the community: the camaraderie of working out with other people, chatting after the class, etc etc. It's more like going to church than going to the cinema.

Yes because “all the people you know” is a representative sample.

  At $2000, a Peloton bike is $1000 to $2000
  cheaper than the cheapest carbon-frame
  bike I could find on Google

That's pretty weird because I get "13 of the best carbon fibre road bikes - from £599 to £10,000" [1] ($732 to $12,200) as the first Google result for "carbon-frame bike"

Unless of course you're ignoring every sub-$4000 bike as "bad cheap carbon" but that's not what your post says :)

Of course, if you're buying a bike exclusively to use on an turbo trainer, I'm not sure I see the logic to getting a carbon frame anyway - it's not like the weight or bump handling makes any difference.

[1] https://road.cc/content/buyers-guide/254002-13-best-carbon-f...

I feel like you're onto something. They take an iPad, slap it on an exercise bike, and charge $2000 for it. I could do that for the cost of the parts. The only thing protecting their business model is their exclusive patent on the idea. Perhaps the patent system is what is truly at fault here?

Do you have a Peloton or have you at least tried one? I don't/haven't but this seems pretty reductive.

Comments like this remind of the top comment when Dropbox was announced on HN[0]:

"For a Linux user, you can already build such a system yourself quite trivially by getting an FTP account, mounting it locally with curlftpfs, and then using SVN or CVS on the mounted filesystem. From Windows or Mac, this FTP account could be accessed through built-in software."

No, it isn't just an ipad slapped on an exercise bike. And no, the patent system is not at fault here. There are dozens of competitors in this market. But Peleton won it.

[0] https://news.ycombinator.com/item?id=8863

Exactly. I can’t say for sure they’ll succeed but they are definitely onto something here. I explained the things o like in the comments above. It is well integrated. All the pieces work really well together. In comparison it’s a fight to get zwift to connect with my smart trainer, hrm and cadence sensor every single time I hop on it.

I was skeptical until I did some classes on a Peloton, and I was impressed. It’s cheaper than one of the boutique spin studios, and the bike is nicer. It does a great job of making you feel like you are part of the class. I would own one if I already didn’t have multiple other ways I get my daily exercise.

The HN crowd is spectacularly ill-equipped to understand Peloton. It’s an actual physical product! Used by people who exercise! A business model that doesn’t involve evading regulation nor stealing personal data!

Nah it’ll never catch on /s

Ipad: $800 (for similar size screen) Quality bike of similar component parts: $800+. Trainer: $800.

You're already $400 behind the cost of a Peloton, which is only $2000...

If you have access to wholesale prices for these parts, sure you could build your own Peloton at home. But using off-the-shelf parts you're just wasting money.

Why do you need a quality bike? You don't need it to be fast or efficient or have good shocks or tires if it's stationery.

rsync is better than Dropbox amiright?

Reply on news.ycombinator.com