Cycling fitness studio SoulCycle announced its intentions to go public yesterday, but whether the SoulCycle IPO attracts the same sort of feverish fanfare its cycling classes do will depend on a few things.
The underwriting will be led by Goldman Sachs (GS), Bank of America Merrill Lynch (BAC) and Citigroup (C).
With Planet Fitness also scheduled to go public next week at a valuation of about $1.6 billion, SoulCycle has chosen either the perfect time or the worst possible one.
If investor response to the Planet Fitness IPO is exuberant, that could confirm that the timing of the SoulCycle IPO was spot-on, as Wall Street hungers for more exposure to the industry.
However, if Planet Fitness (PLNT) is a flop SoulCycle stock will likely face headwinds as markets become flooded with unwanted shares of fitness companies.
From NY Start-Up to Global Phenom
Founded in 2006 by two New York women sick of “fitness routines that felt like work,” SoulCycle began with a single studio on the Upper West Side with 31 bikes.
By 2012, SoulCycle had 12 studios; and by 2014, the brash start-up boasted 36 locations. To date, SoulCycle has 41 locations around the globe, and believes it can open at least 10 to 15 locations a year going forward. When it is all said and done, SoulCycle is aspiring to have a domestic footprint of 250 studios.
There is a possibility the SoulCycle IPO garners high levels of investor attention, largely because of its business model and, yes, even profitability. The company charges about $30 for a 45 minute class (although prices vary by market), and a rabid following of fitness-obsessed patrons register for classes online. The S-1 filing with the Securities and Exchange Commission briefly details the hype:
“Our studios currently average 72,000 rides per week and 30% of our weekly rides are reserved within the first 15 minutes of availability in the frenzied ‘Monday at noon’ experience when riders can select classes for the upcoming week.”
The company is called SoulCycle for a reason: Its mantra is “We Aspire to Inspire,” and the classes take place in a candlelit room that the company describes as “tribal,” “primal” and “fun.”
Aside from the revenue it makes by charging for classes, you can also buy fitness gear, water, candles and cultish paraphernalia on-site. And last year, revenue jumped 49%, from $62.7 million in 2013 to $93.8 million in 2014. Net income rose 41% year-over-year to $25.3 million, and SoulCycle’s profited in each of the last three years.
We don’t know yet if the SoulCycle IPO will be as richly valued as its cycling classes, but given the company’s small footprint, profitability and potential growth opportunities, I’d be shocked if the initial valuation was less than 30 times its 2014 earnings — around $750 million.
I’d be a buyer of the SoulCycle IPO myself at those prices, but we’ll have to wait a while longer to find out its exact valuation.
As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
