Should the Peloton IPO Be on Your Radar?

The Peloton IPO — yet another billion-dollar startup making its public debut in 2019.

Now, if you’re not familiar with Peloton, I can’t blame you. It’s probably just because you’ve never wanted to spend $4,000 on a treadmill.

But it turns out there’s a pretty big market for insanely expensive exercise equipment.

That said, it’s important that traders get familiar with Peloton ahead of the company’s market debut. After all, you don’t have to be a fan of the product to trade the stock.

So, let’s get down to it. Take a look at what you should know about this unicorn IPO.

What Is Peloton?

Peloton sells home fitness equipment with a twist.

The company’s exercise bikes and treadmills are hooked up with huge screens that let customers follow along with live workout classes. It’s basically the perfect solution for rich people who don’t want to leave home to work out.

Peloton’s equipment is a one-time sale, but customers have to pay a subscription fee to take part in the workout classes.

This is great for traders. Subscription-based models can mean steady revenue … and that can be good news for both the company and traders.

Are Peloton’s Products Overpriced?

Peloton’s interactive fitness products are pretty cool. They definitely seem to have a place in the market, but a lot of traders seem to have a problem with Peloton’s pricing.

So are Peloton’s products overpriced?

Yeah, I think they are. I mean, we’re talking about over $4,000 for a treadmill and over $2,000 for an exercise bike.

Sure, these bikes seem high quality, but they’re still just exercise bikes with giant screens. But there’s some good news here: this might not be a huge issue.

First, Peloton seems to be doing well. Its sales grew a lot in 2018. The convenience of at-home workouts seems to be enough to justify the price of the equipment for a lot of people.

Plus, Peloton offers 0% APR financing for both the bike and the treadmill, which makes it far more accessible for some people.

And, of course, Peloton isn’t just relying on equipment sales … After buying a treadmill or bike, you have to pay a $39 monthly subscription fee to join in on the exercise classes.

Since the classes are the whole point of buying the $2,000 bike, most customers become subscribers.

Financials

So, how’s the company doing?

Meh.

Like pretty much every other startup that debuted this year, Peloton’s main challenge is trying to become profitable … And it doesn’t look like that’s gonna happen any time soon.

Sales & Losses

The good news: Peloton’s sales grew to $915 million from $435 million in 2018. Not bad at all.

The bad news: Net losses also grew a LOT. The company’s IPO documents reveal its losses jumped to $245.7 million from $47.9 million last year. Peloton literally states it “may not achieve or maintain profitability in the future.”

It also says that it plans to increase its international presence, which is just gonna add to its expenses.

It probably shouldn’t surprise you to learn that some traders aren’t super excited about going in on another money-losing company. This doesn’t necessarily mean the IPO won’t do well. But there will certainly be some traders who’ll decide to skip this one.

Valuation

Why should the Peloton IPO be on your radar?

Besides dominating the growing interactive fitness market, Peloton got an $8 billion valuation earlier this year.

That’s not quite as high as some of the other startups to go public this year — but it’s definitely still noteworthy.

Just like Uber, Lyft, Beyond Meat, WeWork, and other startups, a multi-billion dollar valuation will probably be enough to create a lot of hype around this IPO.

IPO Details

What’s Peloton hoping to get from this IPO?

Peloton plans to sell 40 million shares for around $26 to $29 per share. At the high end of this range, the company would raise $1.16 billion, which would give it an $8.06 billion valuation.

The company will trade on Nasdaq under the ticker PTON.

Peloton also plans to use a dual-share structure. Early investors will get 20 votes per share while common stockholders will get one vote.

What to Expect

IPOs can be hard to predict. Hype for these major IPOs means high volume and extreme volatility.

But we can still look at a few things to get a better idea of how Peloton stock will perform in its first trading days.

Beyond Meat

What does Beyond Meat have to do with Peloton?

The way I see it, Peloton and Beyond Meat have one thing in common: they’re both high-value startups that received a lot of skepticism before going public.

A lot of traders don’t trust Peloton. They think the business model is broken, profitability will never happen, and the IPO will be a joke.

Turns out, a lot of traders felt the same way about Beyond Meat. And look, I was right there with them … I was a huge critic of BYND. I mocked it since day one.

But you know what I didn’t do? I never shorted that stock.

Look where it is now … After opening at $46 on its first day of trading, BYND jumped to around $240 and is still sitting around $156.

Hate for stocks like these is often what leads to short-term surges. Of course, nothing is guaranteed, but I wouldn’t be shocked to see the same thing happen here.

The Demand Is There

One of the most basic qualities of a successful company is that it fills a gap in the market. I think Peloton does that.

Not everyone likes going to the gym. In fact, it seems a lot of people would prefer to work out at home if possible. That’s what Peloton helps people do.

Not only does Peloton let you work out from home, but you still get to be a part of interactive workout classes. The proof is in the numbers.

In its IPO filing, Peloton reveals 1.4 million members and 511,000 monthly subscriptions for $39 per month. And about another 100,000 people pay for the cheaper $20 subscription.

Customer Retention

Customer retention is super important when dealing with a subscription service, and Peloton’s customer retention rate is very strong.

As of June 30, 92% of equipment sales still had active subscriptions. This seems very promising and can be useful data in forecasting the company’s potential monthly revenue.

Great Market Conditions

Another great sign for the Peloton IPO? The market is currently nearing all-time highs. What does that mean?

It means a lot of money is flowing into the market. When money is flowing, traders become bullish. 

When traders are bullish, IPOs go crazy. Nobody wants to miss out on the next big IPO opportunity. Major startups like Peloton and WeWork could very well benefit from this.

One thing to watch out for, though, is any news about the U.S.-China trade war.

Peloton said tariffs have impacted its component costs. If the trade war continues, these impacts could become even greater.

On the other hand, if the trade war settles down, the market may improve even more and traders could become even more aggressive.

With all these factors at play, I expect Peloton and WeWork to have similar debuts. 

While the long-term performance is tough to predict, I think there can be potential for some solid short-term trading opportunities.

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Final Thoughts

Peloton’s IPO is tricky to predict — just like any IPO. 

The company definitely found a great niche. Its interactive bikes and treadmills may seem overpriced, but the interactive workout classes appeal to people who want to avoid the gym at all costs.

Subscription-based models can make it easier to predict revenue and growth  — but there are no guarantees. Peloton’s subscribers definitely seem loyal if we can really trust the company’s IPO filing.

Plus, the combination of a multi-billion-dollar valuation and a healthy market can make for the perfect storm for bullish traders.

Bottom line: The Peloton IPO stands to create some solid short-term trading opportunities…

But as always, do your research, make a detailed trading plan, and minimize your risk as much as possible.

It’s impossible to predict anything with 100% certainty. If you’re planning to jump into the volatile world of IPOs, you have to be ready for anything.

Trade any big IPOs this year? What worked for you and what totally flopped? I’d love to hear how you approach IPOs and the markets. Leave a comment below!