Hydrow raises $55 million as the at-home fitness industry faces a post-lockdown reckoning

Hydrow, maker of a $2,500 connected rowing machine, said Thursday it has landed another $55 million in funding to fuel its growth while the at-home fitness industry undergoes a shakeout as consumers return to gyms after two years of Covid-related lockdowns and restrictions.

The Series D round brings its total funding to date to more than $255 million, the company said.

The fresh financing for Hydrow comes as Peloton, perhaps the most recognized connected fitness maker in the world, is slashing thousands of jobs and cutting costs across the business after growing too quickly during the height of the Covid-19 pandemic. Under new Chief Executive Barry McCarthy, Peloton is looking to reset to align its operations with the slower levels of growth that it will see as consumers leave their homes and head back to gyms.

Peloton shares are down nearly 80% in the past 12 months, trading below their IPO price of $29, which has cast a cloud over the rest of the industry, particularly players such as Hydrow in the private market that have been looking to go public.

According to Hydrow founder and CEO Bruce Smith, however, there is still massive room for growth, in spite of the headwinds that Peloton and the industry are facing. He said the overall penetration in connected fitness relative to the total addressable market remains under 10% today.

"The work that we've done around total market penetration — it's just super clear that the pandemic accelerated penetration for a little bit, but we don't see any change in the long-term trends," said Smith, in a recent phone interview. "Actually, the pandemic is going to continue to accelerate demand because nobody is going back to the office five days a week. It's the same for fitness."

"People are absolutely going back to the gym," Smith said. "We support that, and we're going to be in your gym in your apartment building. And your home. And that hybrid experience is the new normal going forward."

Last June, Bloomberg reported that Hydrow was exploring pursing an initial public offering, or merging with a special purpose acquisition company, at a valuation of more than $1 billion. Peloton's market cap, for comparison, has tumbled to a little more than $7.9 billion, from a high of roughly $50 billion in early 2021.

Hydrow declined to comment on its current valuation or its plans to take the business public. Smith, though, said that hitting the public markets is still in the cards.

"A key part of getting ready to be a public company is that ability to forecast ... that's really what rewards your valuation, and we are focused on that," he said. "Every time somebody learns about rowing, they choose Hydrow."

Peloton is said to be working on its own rowing machine as it develops new products to grow sales, which could pull some future demand away from Hydrow. Other rowing machine makers include iFit Health and Fitness' NordicTrack division, CityRow and Ergatta.

Hydrow doesn't disclose its financials since it's not a publicly traded business, but it said its revenue grew three times 2020 levels in 2021. It also said it counts more than 200,000 users today.

People who already own a Hydrow rowing machine can pay an additional $38 per month to access the company's live and on-demand classes. Hydrow also offers a digital-only membership for $19.99 per month.

Data shows just how much more cardio equipment consumers scooped up during the pandemic compared with pre-Covid levels, as many sought to recreate some sort of gym experience at home.

Sales of cardio equipment — including treadmills, stationary bikes, rowing machines, steppers and ellipticals — totaled $1.5 billion in the United States in 2021, growing 95% from 2019 levels but falling 4% from 2020 levels. That's according to data tracked by The NPD Group. Treadmill sales, however, did grow 5% in 2021 compared with 2020, NPD said.

Hydrow said it will use the fresh financing to help with marketing expenses and bigger brand building.

The Series D round was led by Massachusetts-based private equity firm Constitution Capital, along with investments from L Catterton, RX3 Ventures, Liberty Street, Activant Capital and Sandbridge Capital.

"The fact that Hydrow's growth continued to accelerate as consumers were able to go back to the gym and fitness studios underscores the tailwinds driving connected fitness in general, and Hydrow specifically," said Michael Farello, managing partner at L Catterton.