Peloton is a pioneer of the "software as a service plus a box" business model. The model can offset CAC with the upfront equipment profit, effectively reducing CAC payback period to 0 if CAC < Equipment profit. This is obviously a very powerful business model, and is sure to draw competition and copy cats.

Competition will certainly impact CAC; however, if the equipment margins are high enough (which we'll confirm in a look at their unit economics), this isn't especially worrisome. More critical will be its impact on churn, a key driver of consumer LTV, which, along with total subscribers, is what this business equation distills down to.

Consumer LTV is a function of pricing power, software margin, and customer lifetime. I don't think there's a huge focus on increasing subscription pricing from $39/month, as its set currently. And while there's probably some ways to stretch software margins, producing quality original content and paying for music royalties will prohibit Peloton from achieving more traditional SaaS margins. Churn becomes the most crucial lever for Peloton to optimize for, which is why you'll see them continue to expand product lines to engage their customers in more way than one.

Total subscribers is a function of Total Addressable Market (TAM) and growth. Initial skepticism about the TAM of a ~$1,000 exercise bike were ameliorated by explosive growth and expanding product verticals amidst the pandemic. The early growth will be a challenge to maintain, but critical to Peloton's identity as a "platform".

THE SPOT:

Graft

THE CITY:

Charleston, SC

Amazing wine, great people, and fun space made this our most visited spot in Charleston. Go early or late or both.

https://www.graftchs.com/

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