SUMMARY

ClassPass makes money by selling monthly subscriptions, which allow customers to take exercise classes at many boutique fitness studios. Rather than being confined to the classes available at a local gym, ClassPass allows users to choose from a wide range of activities and explore what different facilities have to offer. This is compelling to consumers because they get to work out at many different studios instead of a single gym with limited options. It is compelling to gym owners, particularly smaller ones, because they attract customers on an ongoing basis with very little effort or advertising. ClassPass has competition, however, is a market leader in their space. They are the world's largest health club aggregator by number of club partnerships, with 15,000 health clubs in 11 countries worldwide and counting. Here’s how ClassPass explains how it works: https://classpass.com/try/how-it-works

THE TEAM

The founder Payal Kadakia is an MIT graduate and has worked at Warner Music and at Bain & Co. prior to starting ClassPass. The current CEO, Fritz Lanman, is an accomplished investor with companies such as Square, Pinterest and Wish in his portfolio. Learn more about the executive team at ClassPass here.

THE MARKET

According to IHRSA’s 2019 report, in 2018, health club membership topped 183 million users around the globe. Industry revenue totaled an estimated $94 billion in 2018, and the club count exceeded 210,000 facilities. Leading markets continued to show growth in the Americas and Europe. This is a massive fragmented market which offers excellent revenue, upsell, and profit growth for ClassPass.


WHY WE LIKE CLASSPASS

Investing in Market Leaders - Our investment thesis is straightforward: invest in #1 or #2 in a given vertical, have a mid-term outlook and pay a fair price for the investment. ClassPass is valued at $600M at this point and we believe it is imminent for them to become a “unicorn” i.e. exceed $1B in valuation.

They benefit from the Network Effect - In this space, the more customers one has the more valuable they are and it becomes harder for new entrants to steal away business. ClassPass has achieved that so far.

Large Market - The overall fitness market at $100B with 210,000 operators is fragmented and offers excellent growth prospects above and beyond what the company already achieved.


RISKS

Complexity of Optimization - We see that calculating optimal levels of pricing strategies, coupons and promotions can be complex. ClassPass must be very calculated in how they execute their pricing strategy both in smaller markets and in large ones like New York City.

Aggregation - Given the increasing appetite in fitness, bigger gyms are expanding and new chains of specialty gyms are being launched such as SoulCycle. Even though we see the aggregation risk at a relatively low level, strong gym concepts can steal away the lucrative segments of ClassPass customers.

Outside Competition - With such a massive market and a user base, companies outside this vertical may become a competitor. From expedia to booking.com, to airbnb, even Google or Amazon may decide to enter this space. If that happens, at this current scale, ClassPass becomes an immediate acquisition target if it hasn’t already been that.


VALUATION

Valuation in $M.

Valuation in $M.

ClassPass has raised to date $265.70M and currently sits at a post-money valuation of $610M. The company has a stellar list of existing investors. Some notable names are:

  • GV (Google Ventures)

  • Temasek Holdings

  • General Catalyst

  • Mayfield Fund

  • Charles River Ventures

* Source: PitchBook 2019

For more information, contact research@venture-science.com.