US Fitness Oversaturation And Online Churn Will Erode Profitability

Key Takeaways

• Shifting consumer preferences toward boutique fitness, at-home options, and digital platforms threaten Planet Fitness's member growth and revenue stability.
  
• Intensifying competition, market saturation, and easier membership cancellation are eroding brand differentiation, compressing margins, and boosting customer churn.
  
• Expanding health-conscious markets, premium memberships, and franchise-driven growth are boosting profitability, margins, and cash flow, supporting long-term earnings and shareholder returns.

Catalysts

Planet Fitness, Inc., together with its subsidiaries, franchises and operates fitness centers under the Planet Fitness brand.

• The rapid rise of health consciousness among consumers is supporting strong demand for boutique fitness studios, specialized workout offerings, and at-home fitness options, which are steadily fragmenting the fitness market and drawing away higher-value and more engaged customers from budget gym chains like Planet Fitness. This secular shift threatens long-term member acquisition, driving higher churn and jeopardizing sustained revenue growth.
  
• The continued adoption of remote work, combined with easier access to digital and app-based fitness platforms, is reducing the necessity of in-person gym memberships-particularly for younger, tech-savvy generations. This persistent change in fitness habits is likely to suppress future membership growth and increase customer attrition, impacting both topline revenue and the profitability of franchisees.
  
• Aggressive domestic franchising and densification in urban and suburban locations risks reaching a point of over-saturation in the United States, which will limit meaningful unit expansion going forward and pressure same-store sales growth. As incremental locations generate diminishing returns, the company's compounded annual revenue growth rate is likely to slow materially.
  
• The company's brand differentiation is facing erosion as competitors introduce similar low-cost, judgment-free models with enhanced digital engagement, creating price wars and compressing net margins. This intensifying competition from both national chains and well-funded regional players is set to dilute Planet Fitness's competitive moat and limit pricing power for core and premium memberships.
  
• The national rollout of streamlined online membership cancellation, while positioned as member-friendly, is already translating into structurally higher churn and elevated attrition. This operational change, combined with macroeconomic pressures on discretionary consumer spend, will depress predictable, recurring revenue, reduce franchise royalty streams, and ultimately weigh on net earnings growth in the coming years.

Planet Fitness Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Planet Fitness compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Planet Fitness's revenue will grow by 11.5% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 16.2% today to 18.2% in 3 years time.
• The bearish analysts expect earnings to reach $293.9 million (and earnings per share of $3.93) by about August 2028, up from $189.0 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 38.2x on those 2028 earnings, down from 47.3x today. This future PE is greater than the current PE for the US Hospitality industry at 22.5x.
• Analysts expect the number of shares outstanding to decline by 0.79% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.22%, as per the Simply Wall St company report.

Planet Fitness Future Earnings Per Share Growth

Risks

• The increasing health consciousness among younger generations, particularly Gen Z and Gen Alpha, is expanding Planet Fitness's total addressable market long term, which can drive sustained revenue and membership growth over time.
  
• The company's aggressive domestic and international expansion strategy, supported by improving unit economics, continued franchisee demand, and successful proof-of-concept in markets like Spain, is likely to support growing revenue, earnings, and higher franchise fees.
  
• A growing mix of higher-margin Black Card members-currently at record penetration levels with additional planned price increases-should enhance average revenue per member and support margin expansion, benefiting net income and profitability.
  
• Ongoing investments in format optimization, such as increased strength equipment and redesigned club layouts, are boosting member engagement and utilization, which can lift same-store sales, franchisee economics, and ultimately top-line growth and adjusted EBITDA.
  
• The company's asset-light, franchise-driven model, coupled with cost-saving initiatives (such as real estate and construction optimizations and more efficient marketing), is supporting strong free cash flow, stable margins, and the ability to return capital to shareholders, which could underpin long-term earnings growth and share price appreciation.

Valuation

• The assumed bearish price target for Planet Fitness is $105.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Planet Fitness'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 $175.0, and the most bearish reporting a price target of just $105.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $1.6 billion, earnings will come to $293.9 million, and it would be trading on a PE ratio of 38.2x, assuming you use a discount rate of 9.2%.
  
• Given the current share price of $106.63, the bearish analyst price target of $105.0 is 1.6% lower. The relatively low difference between the current share price and the analyst bearish price target indicates that they believe on average, the company is fairly priced.
  
• 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.