In Peloton post-pandemic competition with gyms, it's fitness app Strava that can win

When this year’s Tour de France departed the city of Brest on June 26, most of the 184 pro cyclists were logged onto Strava.

So were millions of recreational athletes around the world, from runners in Rio to swimmers in Switzerland to mountaineers in Montana. There were legions of Strava users indoors, too, on Peloton stationary bikes and treadmills, Zwift “smart” trainers and NordicTrack rowing machines.

Mobile fitness app Strava tracks more than 30 different activities in real time and uploads speed, distance, cadence and other performance data to a platform where 86 million users can analyze their own workouts, share and compare them with fellow users, and engage in friendly challenges with friends and strangers. Its popularity soared amid the pandemic as gyms closed and working out at home and outdoors boomed.

“We saw tremendous growth in our community,” said Strava chief executive officer Michael Horvath. “There were months during 2020 when we had three million new registrants, and we’re now at about two million a month, double from pre-Covid. That represents Strava motivating people, helping them get through that time and giving them an opportunity to connect with other people.”

Strava, which is a private company, was launched in 2009 in San Francisco by Horvath and Mark Gainey, former teammates on the Harvard rowing team who now serve as CEO and executive chairman, respectively. The company has about 270 employees and additional offices in Denver, Bristol, England, and Dublin, Ireland — the overseas locations owing to the fact that more than 80% of Strava users are outside the U.S.

More than 95% of those 86 million users access Strava for free; the rest pay a $5 monthly subscription fee to gain additional features. While Strava does not report revenue, analytics firm Sensor Tower estimates that it generated $72 million last year, up from $60 million in 2019, ostensibly from selling data, rights to partners that sponsor challenges and subscriptions.

Strava raised $110 million in new funding in a Series F round last fall led by TCV and Sequoia, valuing the company at more than $1.5 billion. The founders have said it is not yet a profitable company.

More than 400 hardware devices can connect with Strava, including home-fitness and gym equipment, smart watches and cycling computers. The company said it had more than 1.1 billion activities uploaded to its platform last year, a 33% increase from 2019. That aligned with the major uptick in fitness hardware sales from companies like Peloton.

“Through Covid, there’s been a significant awakening of how important physical activity is to people’s lives,” said Tom Cove, president and CEO of the Sports and Fitness Industry Association in Washington, D.C., which represents manufacturers and retailers.

At last count, Horvath said, “close to 50 million Peloton activities have been uploaded to Strava,” acknowledging the synergy of its partnerships with equipment makers. “Being the hub of the connected fitness landscape, we provide the place for athletes to stay connected with their communities after the workout is over.”

The continued success of fitness products appears to be a good harbinger for Strava.

According to retail research firm NPD Group, from March to October last year, health and fitness equipment revenue more than doubled, to $2.3 billion. Sales of stationary bikes nearly tripled, while treadmill sales ramped up 135%. “In the first three months of this year, retail sales were up 30% versus that period last year,” said Matt Powell, vice president and senior industry advisor for NPD. Sales in March, however, were flat compared to that month a year ago, which he foresees as a proxy for the rest of 2021.

Peloton specifically has grown commensurately. Revenue for its fiscal year 2020, which ended June 30, rose nearly 100% year over year to $1.8 billion, and management projects FY 2021 revenue will be rosier, up to $4 billion — even accounting for the $165 million loss Peloton expects for its treadmill recall. As of March 31, the New York-based company reported more than 54 million members, each of whom pays a monthly subscription fee of either $12.99 for digital access to live and on-demand classes or $39 for an expanded suite of features, on top of paying between $1,895 and $2,345 for a Peloton bike or up to $4,295 for their treadmill, which is not currently available in the U.S. as the company works on a fix for the safety issues.

There could be softening in that demand as in-person workouts and gyms re-open. Wedbush Securities downgraded Peloton last week, claiming that the company has seen a drop off in customer engagement, based on analysis of social media and internet search trends.

“PTON is now embarking on the next leg of its growth story, one that in a post-pandemic era will require the company to generate its own momentum through savvy marketing and compelling new products,” the Wedbush analysts wrote in their note.

Peloton declined to comment for this article.

Connectivity to Strava has helped propel Zwift, a game-like online cycling platform that allows subscribers who pay $14.99 a month to create animated avatars of themselves that ride in the virtual realm from indoors. Typically, a real-world cyclist attaches the back end of his road bike to a digitally controlled smart trainer, linked to an app that simulates his avatar riding an actual route — from a local favorite to a mountain stage in the Tour — seen on a monitor, tablet or smartphone. The trainer automatically increases and decreases resistance to mimic the route’s elevation. About 75% of Zwifters upload their ride data to Strava and plug into its features.

Since Zwift was founded in Long Beach, California, in 2014, 3.5 million accounts have been created. The company did not provide the current number, though said the figure doubled in FY 2021, which ended in March. Strava stated that 100 million Zwift activities have been uploaded to its platform, including thousands of grueling “Everstings,” a single virtual ride that climbs a total of at least 29,029 feet, the height of Mt. Everest. During worldwide Covid lockdowns last year, Zwift held a virtual Tour de France, with classifications for both men and women.

“Zwift is a platform for people to chase whatever carrot they’re looking for,” said co-founder and CEO Eric Min. “Motivating people to do more is our goal.”

While subscriptions are “really where the value is for us as a business,” Min said, the company is developing its own smart trainers and indoor bikes, likely to hit the market next year. Zwift won’t cut out its existing hardware partners, including Wahoo, Elite and Tacx, “but we think we should be the ones setting the bar,” Min said.

As Covid restrictions continue to ease, people are heading back to the gym. In May, traffic at gyms nationwide was back to 83% of January 2020 levels, and down just 6% from the same period in 2019, according to research from Jeffries.

But does that mean Zwifters, Peloton devotees and other at-home exercisers will lose their mojo and begin using their equipment as clothes hangers? “My theory is that if you spent a couple thousand dollars buying a piece of equipment for your home, it’s highly unlikely you’re going to pay $50 a month to go to the gym and exercise on the same machine,” Powell said.

The challenge for the home fitness industry then becomes retaining their millions of new customers. The key, Powell said, is to keep users connected to the communities of fellow exercisers and to “enhance the experience to make people want to continue to use it.”

That’s music to Strava’s ears, because regardless of where people work out, the data can be uploaded to its platform.

Even with Strava’s success, the marketplace for fitness tracking apps remains highly competitive. MyFitnessPal, which was sold by Under Armour to private equity firm Francisco Partners for $345 million in October 2020, said it had more than 200 million users at the time of the transaction. Under Armour also owns MapMyRun and MapMyRide, which track running and biking activity, respectively, while shoe brand Asics owns RunKeeper. Apple and Google have their own health tracking apps that incorporate some physical fitness activities such as walking and cycling that are more geared towards casual exercisers.

“It’s pretty simple,” Horvath said of Strava’s retention strategy. “We’re 100% focused on making Strava indispensable to athletes everywhere. When we do that well, it fuels our community growth.”

“We think there are 700 million people in the world who wake up every day wanting to be active. We haven’t met them all yet, but we’re trying,” he said.