IPO

Wheels on Wall Street: Peloton reveals growing revenue (and losses) in IPO filing

August 27, 2019 View comments (2)
Peloton has unveiled its highly anticipated IPO prospectus, planning to trade on the Nasdaq under the symbol PTON and setting an initial fundraising target of $500 million, though that figure is likely a placeholder. The at-home fitness equipment provider is among the most valuable VC-backed companies in the US, but like many of its unicorn brethren going public this year, despite rising revenue, its financials are in the red. For the 12 months ended June 30, Peloton reported its losses had increased by more than 300% YoY.

In the filing, the New York-based company calls itself the largest interactive fitness platform in the world. Peloton started out selling a stationary bike with a video screen and offering a monthly subscription that allowed users to take fitness classes without going to a spin studio. The company added a treadmill to its lineup in 2018, also including a subscription model beyond the base price of the equipment.

Tiger Global, which first invested in Peloton in 2014, holds the largest pre-IPO stake in the company at 19.8%, followed by True Ventures (12%) and Fidelity (6.8%). Goldman Sachs and JP Morgan are the lead underwriters.

Here are some key facts and figures about the company's history and its IPO filing:

Peloton's time as a private company

Founded: 2012

Total venture capital raised: $994 million

First achieved unicorn status: May 2017, reaching a valuation of $1.25 billion with a $325 million Series E

Most recent funding round: $550 million Series F at a $4.15 billion valuation in August 2018

Key figures

Revenue: $915 million in FY 2019, up from $435 million in FY 2018

Net loss: $195.6 million in FY 2019, up from $47.8 million in FY 2018

Subscriber base: 511,202 as of June 30, 2019, up from 245,667 as of June 30, 2018

Notable takeaways

Building the brand comes at a heavy cost

Peloton's IPO filing has revealed a 110% YoY increase in revenue in FY 2019. But thanks in large part to the company's burgeoning sales and marketing costs, which roughly doubled YoY, going from $151.4 million to $324 million, the bottom-line numbers have taken a serious hit. The company has acknowledged that brand promotion activities in the future may require substantial expenditures, especially as it plans to expand operations in markets such as Canada, Germany and the UK.

Seasonality drives sales

The filing also notes that Peloton generates a disproportionate amount of sales on its fitness products from November to February, due to factors such as cold weather and New Year's resolutions. On the flip side, the company's working capital needs are greater during the second and third quarters of the fiscal year, when members typically have greater options for outdoor activities and are more likely to take vacations.

Legal issues add to uncertainty

Peloton has had its share of recent litigation. In March, a group of nine music publishers from the National Music Publishers Association filed a lawsuit alleging that Peloton failed to obtain proper licenses for some of the songs used in its workout videos. The company removed videos featuring the songs in the lawsuit, angering some of its customers, and in April filed a countersuit accusing the NMPA of antitrust behavior.

This specific case is still pending, but the IPO filing acknowledges the risk of future fines or lawsuits given the complexity of the agreements Peloton may sign to obtain licenses from record labels, music publishers, artists and more.

Apart from the music infringement case, Peloton is also involved in a lawsuit alleging that rival Flywheel Sports infringed upon Peloton's patents by launching a stationary bike that allows users to stream cycling classes, track performance and compete with other riders. The case is ongoing, but the IPO filing highlights that, as the market for fitness products and services grows, the company is expecting the occurrence of infringement claims to increase in the future.

With respect to its valuation, Peloton has had an arguably enviable journey toward the public market, and its IPO could be one of the year's biggest, with Bloomberg reporting that the company could be seeking a valuation of $8 billion or $10 billion. Even though the business claims to enjoy first-mover advantage in the industry, multiple factors including branding costs, complicated licensing agreements and increasing competition could weigh heavily on its prospects as a public company.

Featured image courtesy of Peloton

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