Two days after Peloton's prospectus arrived, Bloomberg published a new report that looked a little like Silicon Valley Mad Libs: Peloton's ongoing patent-infringement lawsuit against a rival called Flywheel has led to a subpoena seeking information from WeWork, which apparently may have considered purchasing part of Flywheel's operations to boost its portfolio ahead of a looming IPO of its own.
Got all that? Hopefully. Because it's not the only Peloton-related lawsuit we'll be discussing today.
Peloton's IPO filing this week brought some of the usual trappings of a unicorn debut (growing revenue, growing losses, promises to sell happiness). But it also comes with a few unusual factors. And that's one of 10 things you need to know from the past week:
1. Bike businessAbout a year ago, we took a closer look at the Peloton-Flywheel lawsuit, which alleged that Michael Milken (yes, that Michael Milken), an investor in Flywheel, obtained information about Peloton's tech and strategy under false pretenses in the runup to Flywheel launching an in-home cycling product of its own. Milken denied the charge, but the lawsuit has continued to work its way through the courts. In June, the US Patent and Trademark Office reportedly decided to reexamine the validity of three Peloton patents at the heart of the case.
You might think such a suit would be worth a mention in Peloton's IPO prospectus. But if you do, you'd be wrong; not once does the name Flywheel appear in the filing's nearly 200 pages. Perhaps because Peloton is more concerned with some other legal entanglements.
Its filing does explicitly refer to two other lawsuits Peloton is facing. One is from a company called VR Optics, which is accusing Peloton of infringing upon a patent titled "Interactive fitness equipment." No trial date is currently set. More consequential, perhaps, is another suit brought by a group of major music publishers seeking more than $150 million in damages for the "knowing and reckless" use of songs in Peloton's classes without the proper license. Peloton has since countersued, as these things always seem to go. The company pulled the songs in question from its platform (at least temporarily), but in its IPO filing, it promises to "defend the claims made against us and to prosecute the counterclaims presented."
One last legal note: The word "spin" doesn't appear a single time in Peloton's filing. That's likely due to a company called Madd Dogg Athletics, which has trademarked the term for its own proprietary in-home cycling services and has developed a reputation for being very willing to sue to protect that trademark. Who knew the stationary cycling industry was so litigious?
Let's get to the rest of Peloton's newly released S-1. It's impossible to deny the company's popularity: Peloton claims that 92% of the fitness machines it's sold still have active monthly subscriptions attached, implying an impressive degree of stickiness and providing a steady supply of revenue. The company has increased its subscriber base nearly fivefold since 2017, leading to a boom in revenue: up from $218.6 million in its fiscal 2017 to $915 million in 2019.
Losses, though, are also growing. After a net loss of $71.1 million in fiscal 2017, Peloton finished $195.6 million in the red this past year. Hey, all those commercials featuring incredibly fit people happily sweating away in their Manhattan penthouses don't pay for themselves: Between 2017 and 2019, Peloton increased its annual sales and marketing expenditure from $86 million to $324 million.
Comparable public companies can be hard to find due to Peloton's unique business model. The company highlighted this ineffability at the very beginning of its prospectus. First, it describes itself as a technology company creating a new connected fitness experience. But that's not all. In quick succession, the filing also defines Peloton as: a media company, an interactive software company, a product design company, a social connection company, a direct-to-consumer retail company, an apparel company and a logistics company. I'm not saying any of that is wrong, but it's certainly kind of confusing.
But as startups and investors have been proving for years now, you don't get to a $4.15 billion valuation (Peloton's current VC-backed figure) without some lofty ambitions. Just ask WeWork, the company that Peloton's lawyers would like to interrogate. As Peloton founder John Foley told PitchBook last year, his original pitch to potential backers was this: "I am going to take over the world."