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Investment Opportunities

Peloton IPO: What Every Investor Should Know

Peloton Interactive could be next up in the 2019 IPO queue. After filing its S1 paperwork in August, many expect the company to go public in the coming weeks. With a Peloton IPO on the horizon, let’s check in on the innovative fitness startup.

What is Peloton?

Peloton offers stationary bikes and treadmills with large displays that stream fitness classes. But according to CEO John Foley, that description would be selling the company short. “Peloton sells happiness,” he said recently.

Peloton, much like WeWork, is looking to bolster its brand ahead of its IPO.

In the first section of Peloton’s IPO paperwork, the company defines itself as “an innovation company transforming the lives of people around the world through our ever-evolving fitness platform.”

It’s true, Peloton isn’t your average gym equipment provider. It provides an interactive fitness platform that is genuinely innovative. But is Peloton really everything it says it is?

In the S1 paperwork Peloton calls itself “a technology, media, software, product, experience, fitness, design, retail, apparel and logistics company.”

At the end of the day, Peloton sells exercise machines that can stream fitness classes. And they charge a pretty penny for both. But many users are obsessed with Peloton. Many have called it “the Apple of fitness” because of the way it merges technology and aesthetics.

And, like Apple, Peloton wants to be more than just the product it sells. As Foley says, “Peloton is so much more than a bike – we believe we have the opportunity to create one of the most innovative global technology platforms of our time.”

This grandiose language was also used by WeWork in its IPO statement: “Our mission is to elevate the world’s consciousness.”

And when it comes to turning a profit, Peloton is closer to WeWork than it is to Apple…

Peloton’s Profitability and Financials

Peloton’s fiscal year ended on June 30. The company reported that sales grew 110% from $435 million to $915 million. That is impressive growth.

However, the losses were also significant. Over that same time span the company lost $245.7 million. That is quadruple the $47.9 million net loss from 2018.

Peloton is hardly the first company to report big losses before an IPO. Uber (NYSE: UBER), Lyft (Nasdaq: LYFT), WeWork and many other startups have done the same. And the Peloton’s customer base appears to be growing despite these losses.

Woman exercises on stationary bike, Peloton IPO looms.

Peloton’s Increase in Subscriptions

Peloton claims to have 1.4 million members. The company also claims to have “consistently seen workouts increase over time.” Subscriptions increased from 245,667 to 511,202 over the last year.

Peloton’s products are expensive, but there are many options. The stationary bike costs about $2,000 and the treadmill costs about $4,000. A subscription to access Peloton’s interactive classes costs $39 month. But Peloton also offers digital memberships for $19.49 per month to people who don’t want to buy one of their expensive machines. These memberships offer yoga, meditation and other fitness opportunities.

Peloton’s Music Complications

With more subscribers comes more media attention, however. And Peloton found itself in some legal trouble earlier this year.

Peloton allows users to stream music through its services. The only problem is that Peloton doesn’t own that music. Peloton was hit with $150 million lawsuit for using songs by Drake, Lady Gaga, Gwen Stefani, Justin Timberlake and others without permission. The lawsuit claims Peloton failed to license songs from music publishers.

Peloton’s Power Structure

There’s another slight problem with Peloton…

When Peloton goes public, much of the power will remain with management and early investors. The plan is for early investors to receive shares with 20 votes compared with just one vote for shareholders of the common stock. Control of the company will remain consolidated to a select few. Certain indexes, like the S&P 500, don’t accept companies that consolidate power like that.

Peloton IPO Valuation

Peloton has raised just shy of $1 billion in funding. And Peloton’s most recent valuation is $8 billion. That’s a lot of raised capital and very high expectations.

And those numbers sounds familiar… The 2019 IPO market has seen many large, overvalued companies flop on Wall Street. And by the time regular investors start to buy shares, much of the money is already made by larger financial institutions.

Who’s to say the Peloton IPO will be any different?

Keep an eye out for more of these potential investment opportunities, like the Airbnb IPO.

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