Avoid IFIT Stock After Its IPO

IFIT stock is the latest company to throw its hat into the crowded digital fitness market. This week, iFit Health & Fitness is going public. The company will be listed on the Nasdaq under the ticker IFIT and will sell 30.7 million shares for $18 to $21 each.

IFIT is hoping to take a bite out of the growing virtual fitness industry and knock Peloton off its pedestal. These companies sell a mix of equipment and virtual workout plans that let users get a gym-like workout in their home.

There are plenty of companies, like Apple with Fitness+ and Nike with Training Club, all vying for a slice of this industry - a global market that is projected to reach at $59 billion by 2027.

It's tough competition. And with Peloton's (NASDAQ: PTON) surge in popularity over the years, it's hard see how iFit will make its mark. But with the NordicTrack and ProForm brands, IFIT is one of the only fitness companies able to directly compete with Peloton and its connected fitness products.

So, will iFit Health & Fitness be a winning IPO stock that delivers the same kind of all-time returns of 229% that Peloton did? Let's take a closer look...

What Is iFit Health & Fitness?

iFit isn't just another fitness app. It's also an exercise equipment manufacturer with a range of products that offer an interactive experience, similar to Peloton. It also offers a subscription and an expansive library of on-demand workouts that users can personalize.

The company was cofounded by current CEO Scott Watterson and Gary Stevenson in 1977 as Weslo. Over time, it acquired ProForm Fitness and was eventually sold to the private equity fund Bain Capital in 1994. After the purchase, the company was renamed ICON Health & Fitness - this name stuck until it rebranded to the current iFit Health & Fitness in June 2021.

All of iFit's fitness products are connected by its operating system to deliver interactive experiences on treadmills, bikes, ellipticals, climbers, fitness mirrors, and more.

Unlike Peloton, iFit offers a variety of equipment and prices to attract users of all backgrounds and income levels.

Unlike Peloton, whose bikes start at $1,495 for the basic Bike and $2,495 for the Bike+, iFit's NordicTrack S15i and S22i bikes are priced at $1,599 and $1,999, respectively. This makes them more attractive for budget-conscious buyers. It also might be why Peloton lowered the price of its bike.

iFit also has a wider range of offerings, including treadmills, bikes, fitness mirrors, ellipticals, and more. Peloton only sells a bike and treadmill right now. The company believes this variety will protect it from drastic changes in consumer trends.

iFit subscriptions are billed monthly or annually. The company offers a one-year subscription with the purchase of particular pieces of equipment. For individuals, the subscription will cost $15. And for families of up to five, it's $39 per month. Meanwhile, Peloton's digital membership is $12.99 per month, and its all-access membership is $39 per month.

The two companies are fairly matched in their pricing, though iFit claims to cover more than 17,000 interactive workouts across 60 workout disciplines.

Is iFit Profitable?

Both iFit and Peloton quickly expanded over the past few years. iFit's revenue doubled from $700 in 2019 to $1.7 billion in 2021. Before the global lockdown, iFit's revenue only grew by 22%.

Of course, Peloton's growth seemed unreal at the time. The company's revenue quadrupled from $915 million to $4 billion between 2019 and 2021. And in 2020, Peloton managed to double revenue thanks to the pandemic surge in demand for at-home fitness.

The growth for both is in large part thanks to the pandemic shuttering gyms, raising demand for at-home fitness.

But while Peloton suffers from delivery issues, iFit has developed a strong, robust supply chain over the years. The company was able to continue operations relatively unfazed throughout the pandemic as demand surged.

And while the company claims to have the largest overall fitness equipment share in the United States, with only 16% of sales coming in from overseas, it plans to expand beyond local boarders. It already has a global presence in 120 countries.

If it leans more into the global market - a market estimated at $2.4 trillion - iFit could see massive growth in revenue. The market in the United States alone is worth $192 billion.

Most of the company's sales came from retail partners - sales through Amazon, Best Buy, and Dick's Sporting Goods made up 54% of its revenue. And 44% of sales were direct-to-consumer purchases from its websites.

Only 2% of the company's sales come from commercial partnerships with gyms and fitness clubs. With gyms reopening, iFit could see a drop in those other areas due to the loss of interest of consumers purchasing their own at-home equipment.

Even so, iFit's subscription service is an area the company plans to focus on moving forward. With 59% of Americans not planning to renew their gym memberships even after the pandemic, the fitness subscription area seems like a solid bet. And the acquisition of the digital fitness platform Sweat will help iFit further grow its base. From 2020 to 2021, the subscriber count doubled from 530,490 to 1.12 million.

Should You Buy iFit Stock?

Despite the company's growth and ability to rival Peloton, iFit is in the red.

Both companies spend a large amount on marketing, but iFit has spent more compared to its revenue. The company spent 30% on sales and marketing over the last two years compared to Peloton spending 26%.

Yet iFit didn't experience the same rapid growth as Peloton.

This could be simply because Peloton has more effective marketing to build a brand, which earns it a higher return on marketing efforts than iFit. Or it could be the hype around Peloton's trendiness. At its height, everyone seemed to be purchasing a Peloton bike. It was inescapable. Now that the dust has settled, Peloton is down by 43% year to date.

Regardless, iFit's deficit continued to grow from $380.4 million in 2020 to $909 million. Not to mention the company's long-term debt of $219.7 million that's set to mature in 2026.

iFit could use IPO capital to invest in product innovation or improved marketing to better compete with Peloton. But that doesn't guarantee better long-term performance, especially if it's already suffering from a lack of turnout from its current marketing efforts.

Ultimately, it comes down to a battle for subscribers. The market might be large enough for both companies to grow, but new subscribers will keep the companies growing. And with Peloton's 5.9 million subscribers overall, it's hard to imagine how iFit will close that gap.

For now, I'd avoid buying shares of iFit at the IPO and wait to see where Peloton moves. If the company continues to lag, then iFit might present itself as an opportune investment.

But if you're looking to invest now, here's a solid, long-term hold...

This Stock Could Triple Your Money