Since its IPO in June 2015, Mindbody(NASDAQ: MB) stock has risen more than 150%. While some investors may think they've missed the boat, this platform provider for the wellness industry still has plenty of room to run.
It has a huge and growing addressable market, a laser focus on the businesses that can benefit most from its platform, and a relationship with its customers where it benefits when its customers succeed. Lets find out more about this company whose purpose is to "connect the world to wellness."
Growing Mindbody's customer base is the primary source of revenue growth for the company. A new customer contributes both subscription fee revenues for access to the platform and a small piece of payments made on the platform.
The wellness industry is estimated at 4.2 million businesses around the world, and growing at 10.6% annually, with the fitness and mind-body segment growing even faster at 21.4%. Even though the addressable market is huge globally, the company isn't setting its sights on world domination just yet. Since the company's software and support is currently English language-based, it's focused on growing in eight English-speaking countries: U.S., Canada, Australia, New Zealand, Hong Kong, Singapore, U.K., and Ireland. These eight countries give the company over 300,000 potential customers and plenty of growth runway beyond the 59,028 subscribers it has today.
Yoga class with people stretching.
Image source: Getty images.
While the company wants to grow its subscriber base, it isn't just looking to add any customer, but is focused on a core set of business segments.
Getting the right customers in the right place
In its recent analyst day presentation, the company explained that it is focused on three go-to-market segments: boutique fitness, integrative health, and salon and spa. This is a very different customer distribution than it has today.
Two pie charts. First is current subscriber distribution with Fitness at 67% and salon and spa at 14%. Second pie is target market distribution with 50% salon and spa and 33% boutique fitness.
Current versus future customer distribution. Charts by author data from Mindbody's 2017 analyst day presentation.
The most noticeable difference between the current and target customer distribution is the salon and spa segment, which the company wants to be 50% of its business, up from 14% now. The 50% target more closely matches the actual proportion this segment represents in the overall market.
A second difference is the addition of the word "boutique" in the fitness segment. A boutique fitness business is one that has a high-touch, experience-based relationship with its customers, which benefits more from the features of the Mindbody platform. Having customers that fit well with the platform makes it more likely that they will "move up" to a more feature-rich subscription that brings in even more revenue for Mindbody.
Getting the right customer is important, but where the customer is located also plays into Mindbody's growth plans. The company believes that it "create[s] a real density of consumer engagement" and a network effect when it attracts customers in the same metropolitan area. As a result, the company is focused on gaining new customers in locations where it already has a presence.
An Apple iPhone with a screen of a map with numerous boutique fitness, integrative health, and salon & spa locations clustered close together.
Mindbody creates engagement when customers are located together. Source: Mindbody.
This "density" of businesses enables the company to more easily match prospective wellness clients with its customers and is one way that Mindbody is helping its customers grow.
Helping its customers grow
In the company's recent analyst day presentation, CEO Richard Stollmeyer said "the most important thing we can do is help our customers bring more consumers in the door. I mean, that's job 1." One of the ways Mindbody is helping bring customers in the door is by integrating its platform with all the major search engines. Potential clients can use Google or Bing to find and book appointments in Mindbody-enabled facilities. On the back end, its customers can see which channels are performing best for customer engagement and acquisition.
Mindbody also recently announced dynamic pricing that helps its customers fill empty appointments/classes and charge more for a popular class where customers see additional value.
Q3 2017 bar charts showing 8% high value subscriber growth, 23% payments growth, 27% average revenue per subscriber growth, and 32% overall revenue growth.
HVS = high-value subscribers at the Starter, Pro, Accelerate, and Ultimate software tiers. ARPS = average monthly revenue per subscriber. Source: Mindbody.
While subscribers were only up 1%, its high-value subscribers (HVS), or customers in a subscription plan, grew 8% year-over-year. Payments represent the total value of all products and services paid through the platform, and a 23% growth number means that Mindbody's customers are selling more. Customers are also upgrading to higher cost subscription packages or buying additional services that resulted in an average revenue per subscriber (ARPS) growth of 27%. All three of these combined together to a healthy 32% revenue growth in the quarter and a 44% compound annual growth rate over the last five years.
Mindbody has a huge addressable market, can utilize its platform to help its customers grow, and benefits when its customers are successful. Having Mindbody's revenue growth aligned with its customers' growth is a powerful relationship, and one that investors should love.
