3 Things You Need to Know About the Peloton IPO

The company is going public in spite of heavy losses and a pending lawsuit. 

This week, connected home fitness device maker Peloton announced its plans to go public later in the year. On Tuesday, the company filed paperwork for its initial public offering. 

Peloton plans to raise $500 million in its Nasdaq offering under the ticket “PTON.” But it was CEO John Foley’s description of the company that raised eyebrows.

Foley said Peloton is a technology company and innovation company and that “on the most basic level, Peloton sells happiness.”

3 things you need to know about the Peloton IPO

In actuality, the company sells internet-connected stationary bikes and treadmills for upwards of $2,000. Peloton said it has more than 1.4 million members and a customer retention rate of 95%. 

Here are three things you need to know about the Peloton IPO:

Peloton is growing very quickly

The company has sold more than 577,000 bikes and treadmills to date. The majority of these sales were in the U.S. 

Most of the company’s revenue comes from sales of its bikes and treadmills, with a smaller percentage coming from member subscriptions. As of June 2019, the company’s reported revenue reached $915 million, which is up 110% from a year earlier. 

Of that revenue, $719.2 million came from sales of the company’s connected fitness equipment. The remaining $181.1 million came from subscription sales.  

The company is also losing a lot of money

Yes, Peloton is growing quickly but the company’s losses nearly quadrupled over the past year. In 2018, Peloton reported a net loss of $47.8 million. In fiscal 2019, the company reported a net loss of $245.7 million.  

The company’s connected fitness equipment may be pricey, but Peloton has heavy costs to cover. The company produces over 950 original fitness programs every month and this is not cheap to produce. 

Peloton spends a ton of money on music licensing fees alone. And its sales and marketing costs doubled over the past year. 

Peloton faces a copyright infringement lawsuit

Shortly after the company announced its pending IPO, it was hit with a $150 million copyright infringement lawsuit. The lawsuit came from 10 music publishers and artists who claim that Peloton used over 1,000 songs without obtaining a license. 

In fairness, this problem is not unique to Peloton. Pandora and Spotify have dealt with this same issue due to the complexity of music licensing. Peloton declined to comment on the lawsuit, pointing to its pre-IPO quiet period. 

Is Peloton worth investing in?

It’s always tough to evaluate which companies will make it big after an IPO. Lyft and Uber are prime examples of “unicorn” companies that went public, only to flop after their IPOs. But Beyond Meat and Zoom have traded well above their initial valuations. 

The health and fitness industry is due for major disruption and Peloton’s strong growth indicates that it could become incredibly valuable. If the company can get its losses under control, this could be a long-term growth stock to invest in.