Summary
- We called a bottom in Planet Fitness back in March 2020. The stock has since moved up more than 50%.
- A higher gym membership is expected into 2021 with conversion of online free content consumers being a priority.
- PLNT's national marketing strategy will be a success in driving acquisition.
- The discovery of a Covid-19 vaccine will add impetus to the company's top line growth.
Thesis
Planet Fitness (PLNT) has rallied 14.10% over the past year and is expected to reap significantly from the concrete news of the successful Covid-19 vaccine trial. The administration hopes to increase its top line growth by increasing gym subscribers as well as maximizing on store growth into 2021. Despite the decrease in same-store sales as a result of facility closures due to the pandemic, I will present an optimistic scenario of why PLNT is a must-have stock.
Business Strength and Growth Strategy
I expressed optimism in my previous article on PLNT with a view on the firm’s financial strength and its capability to withstand the adverse effects of the pandemic. Since March 2020, the stock has grown by more than 55% settling at $78.07 a share from a low of $50.33. Despite a volatile operating environment, the company has reported that 95% of its stores were open as at Q3 2020. Since the beginning of the year, membership has dropped by 7.24% to 14.1 million. Quite frankly, the numbers would have been a lot worse had the company not embarked on a national marketing program that is focused on driving acquisition.
In the US, Planet Fitness made it mandatory for at least 7% of all monthly membership dues collected by franchisees to be spent on local advertising. To increase preference and brand awareness, the company, as well as its franchisees, have spent over $870 million. It was easy to replicate this stratagem in the wake of the pandemic as the company's marketing expenses jumped 59.06% Y/Y in the three months ended September 2020. Members holding PF black cards increased by 61% as at Q4 2019 from Q4 2015 with the average monthly dues growing by 7.57% over the same period per person. There has been a positive correlation between the company's growth in marketing expenses and revenues.
PLNT’s popularity has grown exponentially as the company’s viewership on its Facebook (FB) free channel clocked 45 million in at least 36 countries. On another level, it can be viewed as a work-from-home stock having capitalized on health wellness applications and DIY videos all over the internet. The main challenge here will be in converting the online viewers into gym subscribers post-Coronavirus. About 20% of PF’s online content consumers are non-members, meaning that the company will work harder to introduce them to the stores.
In terms of the national marketing strategy, Planet Fitness is getting it right with special regard to the growth of its franchise business. With high ad growth, we expect PF to have top-level sales post-Covid as the acceleration continues.
Finally, there is a Vaccine
The much-discussed post-coronavirus economy will soon be a reality after Pfizer Inc. (PFE) announced successful late-stage trials of its Covid-19 vaccine.
Since January 2020, new cases of Coronavirus have risen to almost 600,000 per day worldwide.
Source: Google
The US pharma firm’s shares were up by 16.49% in a five-month analysis with a market capitalization of $217.89 billion. While the company is nowhere near a trillion-dollar market cap like Apple (AAPL) or Microsoft (MSFT), it will soon surpass health giant Johnson & Johnson (JNJ) after the vaccine trial reaches a 95% effective rate.
