Can the Peloton IPO Power Through Weak Financials?

Peloton IPO

IPO documents give investors a closer look at Peloton IPO financials.

On Tuesday, at-home fitness equipment manufacturer Peloton revealed the documents it filed ahead of its initial public offering. The company confidentially filed for IPO in June.

Peloton specializes in producing exercise cycles and treadmills with screens that allow users to join in on live and pre-recorded fitness classes from home. Members have to pay a monthly subscription fee to access these classes on their equipment or through the Peloton app.

The home exercise startup is planning to sell $500 million worth of shares in its IPO, though that number may change. In the company’s filing, it said that it plans to extend its international presence, which is likely to bring on additional costs.

As one of the leading companies in the interactive fitness market, Peloton stands to join companies like Uber and Lyft as another major IPO in 2019. Based on recent estimates, Peloton has a valuation of around $8 billion.

As reported by CNBC, Peloton revealed that it will sell Class B stock, which grants 20 votes per share. The company expects to trade its shares on Nasdaq under the ticker PTON.

Peloton Financials

The Peloton IPO filing has given investors a first look at its financials for its most recent fiscal year, which ended on June 30, 2019.

Like many other startups, Peloton isn’t yet profitable. The recently revealed documents show reported losses of $245.7 million, up from $47.9 million last year. The company’s total sales grew to $915 million from $435 million in its 2018 fiscal year.

The startup’s per-share net loss was $10.72 in 2019, compared to $2.18 per share in the previous fiscal year.

Peloton also warned that it “may not achieve or maintain profitability in the future.”

So profitability concerns remain, but Peloton seems to have found a profitable niche as more and more consumers are drawn to the idea of live fitness classes in the comfort of their own homes.

Customer Retention

One of the most promising numbers revealed by the IPO filing is the company’s incredibly strong customer retention rate.

According to the documents, 92% of the fitness products sold by the company still had active subscriptions as of June 30. And the weighted average retention rate of the company’s subscribers has been 95% since the 2016 fiscal year.

Though these retention numbers are very strong, the company stated, “We may be unable to attract and retain subscribers. The market for our products and services is still in the early stages of growth.”

Trade War Risks

Peloton also indicated that it could run into trouble due to the current trade war between the U.S. and China.

Regarding these tariffs, the company said, “These tariffs have an impact on our component costs and have the potential to have an even greater impact depending on the outcome of the current trade negotiations.”

These effects are yet to be seen, but the company could incur additional operating costs as this trade war carries on.

Music Licensing

The company also warned about the costs associated with third-party music licenses. Earlier this year, the company was the subject of a $150 million lawsuit as a group of music publishers accused the exercise company of copyright infringement.

Peloton stated, “Our use of third-party content, including music content, software, and other intellectual property rights may be subject to claims of infringement or misappropriation,” CNBC reported.

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