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Could Peloton's IPO Be a Good Fit for Investors?

Written by Monica Savaglia
Posted May 21, 2019

The exercise industry has become a recent phenomenon. The industry is exploding in recent years as people have become more health-conscious.

In the last decade or so, America has been headed in the wrong direction, with growing numbers of people being categorized as obese.

This unhealthy shift has become a problem, especially for the future of Americans. For children aged 2 to 5 years old, 13.9% had obesity and nearly 2% had severe obesity. For children aged 6 to 11 years old, 18.4% had obesity and 5.2% had severe obesity. In the final age group of youths, children aged 12 to 19, 20.6% had obesity and 7.7% had severe obesity.

The future generations were steadily getting unhealthier. According to the National Health and Nutrition Examination Survey (NHANES), 18.5% of children and nearly 40% of adults had obesity in 2015–2016.

Exercise wasn’t really considered a necessity before, but with the emergence of processed foods and the fast-food industry along with physical activity decreasing in youths, it became apparent that it was necessary to implement ways to increase physical activity.

The fear of other ailments because of being overweight or obese has increased as well. One significant way to get people choosing a healthy lifestyle began with marketing health and exercise as a new trend. Big brands started to jump on this idea of helping future generations become healthier by marketing healthier alternatives and options. Clothing brands started developing lines made for specific types of workouts like yoga, cycling, running, walking, etc. And we started to see more and more gyms opening up that offered affordable membership plans to accommodate people on a budget.

Entering a New Era of Fitness with Peloton

Now we’re entering a new age of fitness. I get bombarded with ads on my phone that are selling fitness apps that I can purchase and pay for monthly to get exercises directly to my phone so I don’t have to sign a contract with a gym. I know my biggest burden in working out is the act of actually going to the gym. It's one of the biggest hurdles for me and many other people. 

I’m sure you’ve seen an ad or two from the exercise company Peloton Interactive Inc. Its ads usually consist of a person sweating on an exercise bike that's facing a giant window with an amazing view. Peloton is a fitness technology company that sells high-end stationary bikes ($2,245) and treadmills ($4,200) and a $39-a-month service of live-streamed classes that give users the opportunity to enjoy their workout in the comfort of their own homes, without the burden of getting in the car and driving to the gym.

That’s one thing a company like Peloton has going for it. A lot of people are self-conscious about exercising at the gym and comparing themselves to other people who may be fitter. With Peloton, people are able to enjoy their workouts without the judgment. However, the price of their bikes and treadmills do seem rather steep.

But imagine the money you’re wasting by having a gym membership and never actually going to the gym. I pay $60 a month for my gym. I could own a bike from Peloton, and the price of that bike would be like me paying for the gym for three years, but I’ll have the bike for years to come.

Still, it is a hefty price tag. But for some, that price tag is worth the convenience of working out in the privacy of their own home.

Peloton Offers its Users Comfort and Convenience, and It’s Paying Off

Peloton offers its 24/7 live-streamed television and workout regimen for $39 a month. There are 10,000 classes on demand. People have deemed the company the Netflix of exercise because it has a plethora of videos to stream depending on the mood you’re in.

It also introduced its Peloton Digital, which is an app with on-demand, unlimited, instructor-led classes covering boot camp workouts, strength training, yoga, and cardio — all for around $20 a month. And that’s still way less than what I’m paying for my gym membership.

In 2017, the company had $400 million sales. By the end of 2019, that number is expected to increase to at least $700 million. Subscription-based business models tend to be very successful. They provide consistent revenue that usually continues to grow as more users sign up. This type of business model is obviously working for Peloton.

According to credit card activity, the company’s subscriber base has doubled in the last year alone — reporting 10,000 concurrent cyclists per month. That’s 10,000 customers paying at least $39 a month to stream workouts.

According to Crunchbase, the company raised $994.7 million from venture capitalists, which puts Peloton’s 2018 valuation at around $4.15 billion. As more news emerges about Peloton preparing for a public offering, banks like Goldman Sachs Group and JPMorgan Chase & Co. are claiming that the company could be worth over $8 billion.

When the company files its paperwork with the SEC for its IPO, that’s when analysts will learn exactly of the margins on both the company’s high-priced equipment and its subscriptions, which is something investors have been very curious about.

Is an IPO on the Horizon for Peloton?

Setting itself up for the perfect time to go public, Peloton is expected to IPO this year, and investors can’t wait for the moment it takes that leap toward being a publicly traded company.

The company has claimed it has sold more than 450,000 pieces of fitness equipment, and that number is expected to rise since Peloton recently began shipping bikes to the UK and Canada. It's expanding globally with its product and opening the doors to new customers who will buy equipment and become monthly subscribers.

Financial information is still yet to be released from the company, and once Peloton files its S-1 with the SEC, that’s when we can get a clearer idea of what kind of numbers Peloton is working with. That’s going to help determine whether it’s worth the investment. As of right now, we do see that it's growing its monthly subscribers and expanding globally, and that’s always good news for any company.

However, don’t be fooled when a biotech company called Peloton Therapeutics IPOs this week. It’s not the same company I’ve been discussing in this article. The company I’ve been discussing is Peloton Interactive.

This happened last month with the companies Zoom Technologies, Inc. (OTC: ZOOM) and Zoom Video Communications, Inc. (NASDAQ: ZM). Zoom Technologies experienced an extended 70,000% surge when Zoom Video Communications had its IPO on April 18. It was a case of mistaken identity because the companies' names are so similar.

This is a word of caution for those of you interested in investing in Peloton Interactive: it is not going public this week. It has yet to file its prospectus with the SEC, which means its IPO is at least a few months out.

If you want to stay up to date with Peloton’s IPO, click here. You’ll have the opportunity to keep up to date on this IPO and other upcoming public offerings.

Until next time,

Monica Savaglia Signature Park Avenue Digest

Monica Savaglia

Monica Savaglia is Wealth Daily’s IPO specialist. With passion and knowledge, she wants to open up the world of IPOs and their long-term potential to everyday investors. She does this through her newsletter IPO Authority, a one-stop resource for everything IPO. She also contributes regularly to the Wealth Daily e-letter. To learn more about Monica, click here.

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