Peloton Interactive has filed papers to hold a public offering, one that follows trends familiar to anyone invested in Uber (NYSE:UBER). Like many tech IPOs, or IPOs that claim to be tech, Peloton’s Securities and Exchange Commission Form S-1 shows a dual-share strategy. There are closely held “B” shares with 20 times the voting power as the “A” shares being offered to a gullible public. You’re not buying “the company.” No one will buy “the company” unless its real owners, including CEO John Foley, decide they want to sell it.
Which they’re not doing.
More important Peloton is, like Uber before it, going public before its business model is proven. The fiscal 2019 revenue of $719 million is twice 2018’s $348 million. But the net loss attributable to common shareholders, $245 million, is five times last year’s $48 million.
Now how much would you pay?
Here’s the Peloton Stock Pitch
Peloton’s pitch is that it’s taking its interactive exercise classes to a global audience — and once that’s complete, profits will rain down.
At the time the S-1 was filed, Peloton had 564,000 connected products in the field and 1.4 million individuals had Peloton accounts. This number includes me, since there are two Peloton bikes at my local YMCA and I have tried one.
But in the same room with the Peloton bikes there are also two Expresso bikes, part of a similar system with silly rides you can do off a screen. There are also several dozen elliptical machines, recumbent bikes and treadmills with cable television for distraction. I like Expresso, but I’m more often found on one of the ellipticals, watching an old movie.
Since Peloton’s 2012 Kickstarter campaign, which raised a little over $300,000, the company has drawn almost $1 billion in private market financing from some of the biggest venture capitalists in the business. The most recent raise was $550 million, with a claimed valuation of $4.15 billion.
What makes Peloton different is that it has both pre-loaded and live online classes, with young, buff trainers who encourage you to ride like they do from a music-filled studio. (The music licenses are “complex and impose numerous obligations upon us that may make it difficult to operate our business,” the S-1 says.) Services delivered from its $2,245 bike or $4,295 treadmill can cost up to $39 per month.
Peloton also has an app from which it sells “digital memberships” at $19.49 per month to support a variety of disciplines including yoga and walking.
There’s a lot of money in exercise but it’s a tough business. My family pays $85 per month for our YMCA membership. This includes all its exercise equipment, a gym, a walking track, a pool, personal coaches and even a towel service. The Y is also a non-profit that serves non-members.
Then there are gym companies like Planet Fitness (NYSE:PLNT), up 36% this year with a market cap of $6.6 billion, privately held LA Fitness, and the newly controversial SoulCycle. All these operators have the same opportunity Peloton has. They’re part of a fast-changing market that still doesn’t reach over one quarter of U.S. residents who remain sedentary.
The Bottom Line on Peloton
Peloton applies cheap technology to a non-technology business, gains some traction then claims it’s part of the revolution. I saw this movie 20 years ago. Peloton is Webvan, it’s Pets.com, it’s CMGI. It’s the 1990s.
Fast wireless internet connections are great for a lot of things. They are going to change the world. But the people who will get us there will have business models that work. They won’t lose money on every customer and try to make it up on volume.
The Peloton IPO is further evidence, as if we needed any, that the current economic cycle is nearing its end.
Dana Blankenhorn is a financial and technology journalist. He is the author of the mystery thriller, The Reluctant Detective Finds Her Family, available at the Amazon Kindle store. Write him at email@example.com or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this article.