Digital Fitness Pressures And Regulatory Costs Will Erode Value

Key Takeaways

• Persistent subscriber churn and heightened competition from tech giants are expected to reduce revenue growth and erode Beachbody's pricing power and earnings prospects.
  
• Rising regulatory compliance costs and commoditization in digital fitness threaten Beachbody's profitability, subscriber retention, and differentiation in an oversaturated market.
  
• Strategic retail expansion, cost discipline, rising margins, and digital innovation position Beachbody for revenue growth, improved profitability, and reduced risk as its business model evolves.

Catalysts

Operates as a fitness and nutrition company in the United States, Canada, the United Kingdom, and France.

• The ongoing shift in consumer behavior towards in-person fitness experiences and boutique studios as pandemic effects fade is expected to persist, undermining Beachbody's core reliance on home-based digital fitness and likely fueling continued subscriber churn, directly suppressing digital segment revenue growth and limiting upsell opportunities.
  
• The digital fitness space remains highly competitive, and as major technology and media firms with greater resources (such as Apple, Amazon, and Peloton) increase their presence, Beachbody will likely face mounting pressure on customer acquisition costs and diminished pricing power, which could erode both net margins and long-term earnings potential.
  
• Beachbody's brand faces significant challenges in maintaining differentiation and relevance in a saturating digital fitness market, with recent digital subscriber count declines of 7.8% sequentially and 18.2% year-over-year-a trend that is likely to continue and result in a shrinking subscriber base and weaker recurring revenue streams.
  
• Regulatory trends around data privacy and security are increasing compliance and operational costs for digital platforms globally; Beachbody's growing dependence on digital channels leaves it highly exposed to these liabilities, threatening future margin expansion and increasing the risk of costly penalties or required investments.
  
• Increased commoditization of digital fitness content is likely to drive further price compression and reduced customer loyalty, limiting Beachbody's ability to maintain or grow average revenue per user, and ultimately constraining overall profitability and potential for sustainable free cash flow.

Beachbody Company Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Beachbody Company compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Beachbody Company's revenue will decrease by 26.5% annually over the next 3 years.
• The bearish analysts are not forecasting that Beachbody Company will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Beachbody Company's profit margin will increase from -17.9% to the average US Consumer Services industry of 11.7% in 3 years.
• If Beachbody Company's profit margin were to converge on the industry average, you could expect earnings to reach $15.1 million (and earnings per share of $2.16) by about September 2028, up from $-58.2 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 2.4x on those 2028 earnings, up from -0.7x today. This future PE is lower than the current PE for the US Consumer Services industry at 20.4x.
• Analysts expect the number of shares outstanding to grow by 2.07% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.41%, as per the Simply Wall St company report.

Beachbody Company Future Earnings Per Share Growth

Risks

• Beachbody's planned retail expansion for Shakeology, P90x, and INSANITY-branded supplements starting in 2026 leverages its large established brands and could unlock major new revenue streams by entering untapped brick-and-mortar and omnichannel distribution, likely increasing both top-line revenue and profit margins over the long run.
  
• The company has executed a dramatic transformation, significantly lowering its breakeven revenue point from $900 million to $200 million, improving cost structure and profitability, and achieving seven consecutive quarters of positive adjusted EBITDA, suggesting a structurally lower risk of sustained net losses in the future.
  
• Gross margins have risen above previous long-term targets, with digital gross margin reaching 87.7% and consolidated gross margins now expected in the 70% to 75% range, indicating improved operational efficiency and the potential for ongoing margin expansion, which could strengthen earnings power as the business stabilizes and grows.
  
• The transition from a multilevel marketing model to an affiliate and omnichannel approach has sharply reduced selling and marketing costs (from over 50% to under 40% of revenue, with further improvements guided), leading to improved cash flow and operating leverage, supporting stronger free cash flow and reducing pressure on net margins.
  
• Increased investment in personalization, AI-driven tools, and enhanced digital content, combined with positive signals from product innovation, comprehensive content launches, and a refreshed affiliate model, position Beachbody well to capture growth from long-term secular trends in holistic digital wellness, potentially reversing subscriber decline and supporting higher revenues and improved earnings in the coming years.

Valuation

• The assumed bearish price target for Beachbody Company is $4.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Beachbody Company's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $13.0, and the most bearish reporting a price target of just $4.0.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $129.2 million, earnings will come to $15.1 million, and it would be trading on a PE ratio of 2.4x, assuming you use a discount rate of 8.4%.
• Given the current share price of $5.36, the bearish analyst price target of $4.0 is 34.0% lower.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.