Planet Fitness is winning by charging $10 a month
Posted January 11, 2018 7:52 a.m. EST
NEW YORK (CNNMoney) — Planet Fitness is becoming one of America's favorite gyms.
Why? It's the cheapest pick for people looking to get in shape.
$10 monthly dues are luring first-time gym members and bargain hunters from rival chains. More than 40% of Planet Fitness' 10.5 million members had never signed up for a gym in the past, according to a Piper Jaffray analysis.
Average sports club dues in 2016 were $50 a month, according to the International Health, Racquet & Sportsclub Association.
But Planet Fitness' cheap prices are convincing people to bypass mid- and higher-tier gyms such as Equinox, Gold's, Lifetime Fitness, Crunch, and LA Fitness. It has pushed aside New York, Boston and Philadelphia Sports Club owner Town Sports International, which is now nearly a penny stock.
Although those sports clubs can offer an array of weight-lifting alternatives -- pools, tennis and basketball courts -- customers aren't willing to pay up if they don't use the amenities or see the value, Wedbush Securities analyst James Hardiman explained.
Planet Fitness does have a more expensive $22 option, which includes perks like tanning beds. But it's still a fraction of the cost of other gyms.
The discount gym also isn't under threat from the rise of boutique studios, yoga and pilaties classes, and high-intensity training such as $34-a-session SoulCycle classes or Pure Barre, Cross Fit, Bar Method or Orange Theory.
Planet Fitness got rid of classes, doesn't carry free weights above 75 pounds and scaled back its equipment. The casual atmosphere and simple layout appeal to more casual gymgoers who want to run on the treadmill a couple times a week or squeeze in a lift (but remember not to slam down the weights or the "lunk alarm" will go off).
Investors believe Planet Fitness has found the right model with a low-cost operation and a flood of membership sales.
Revenue from last year is expected to climb to $425 million at Planet Fitness' nearly 1,500 corporate and franchise gyms across the country. 1,000 new ones are on the way over the next five years.
Growth hasn't come at the expense of profit: Planet Fitness expects its 2017 earnings to reach $79 million.
Shares of Planet Fitness gained 70% last year and have doubled since the company went public in 2015. It's now worth more than $3 billion.
Analysts are bullish the company will continue its hot streak despite the crowded gym field and fiavor-of-the-month health and wellness trends that can upend a $28 billion-a-year fitness industry.
Backed by a massive $100 million ad campaign to attract new recruits and an untapped gym market -- only 20% of Americans belong to a gym -- Planet Fitness has a wide lane to run, Cowen analyst Oliver Chen predicted.
"Their biggest competition are the movies and the couch," he said.