Front Page: Peloton

“It is no secret that exercise makes us feel good. It’s simple science: exercising creates endorphins and endorphins make us happy…on the most basic level, Peloton sells happiness.” ~ John Foley, CEO of Peloton

Overview

Peloton likely needs no introduction. The self-labeled “tech / software / apparel / retail / media / social connection” company is at its core a fitness company that sells bikes and treadmills with a touchscreen attached and a subscription for tuning into classes. Let’s not forget it’s main best seller – happiness. It all started in 2012 when CEO John Foley noticed barriers to working out at studio classes while balancing work and kids. Seven years later, the company went public, and results, though still early, are not great.

Stats

Here are some stats that best represent Peloton’s growth:

• 1.4 million subscribers as of September 2019
• Over 400,000 bikes sold
• Over 55 million workouts to date this year
• Employees: 700+
• Up to 48 live Peloton classes a day

Differentiators

A few things stick out when looking at Peloton. For one, they have accumulated a massive cult following for its brand. Not only that, Peloton knows how to keep them satisfied with notions like competitions between the class and friends, extreme limitations without the subscription service (that’s sold separately), and the trainers themselves who provide a fun way to get your cardio in.

Funding / S1 Info

Basic Fundraising / IPO Timeline:

• 2012 – Raised $3.9 million for product development
• April 2014 – $10.5 million for series B
• April 2015 – $30 million for Series C
• December 2015 – $75 million Series D
• May 2017 – $325 million Series E; valued at $1.25 billion
• August 2018 – $550 million Series F; valued at $4 billion
• February 2019 – chose Goldman Sachs and JP Morgan Chase to lead IPO
  • Valued at more than $8 billion
• June 5, 2019 – Filed S-1 for IPO
• September 26, 2019 – IPOs at $29/share

Reasons to Worry

There are a few things to be worried about when it comes to Peloton. The first concern is its lack of profitability. Sure, private market investors want to see growth and will throw cash to make it happen. Public investors are a different breed. They want to see the opposite, and Peloton’s stock price dropping may be a clear indicator of that. Second, Peloton is being sued by the National Music Publishers’ Association for $150 million (now up to $300 million) for essentially using copyrighted music without permission. That only makes things harder for an unprofitable company. Lastly, the health and wellness industry is almost exclusively tied to fads and the next big thing (Ab Roller, P90x, etc). People who exercise based on these fads are likely to stick around until something bigger and better comes around. Right now, that’s Peloton. Who will it be tomorrow?

Conclusion

In general, I am skeptical about where Peloton can go after its IPO launch. It’s concerning to me when the CEO, in a letter to investors, believed that Peloton has the ability to “create one of the most innovative global technology platforms of our time.” To date, PTON stock has dipped nearly 10% since ringing the bell which seems to be continuing a trend marked by earlier IPOs this year of companies going public and then going backwards (e.g. Uber, Lyft, Spotify). This might be the biggest indicator of how different the public and private investors today feel about prioritizing growth over profitability. Unless you’re a true software company, that decision may not be the best long-term choice. However, Peloton is still relatively young and has created a cult-like following with a impressively high retention rate. It will be interesting to see how long they can keep this mark up for.