By Eric Smith

Peloton is going public.

The exercise bike maker and interactive fitness provider on Tuesday filed an S-1 statement with the Securities and Exchange Commission, officially announcing that it plans to raise $500 million in an initial public offering amid significant losses but impressive revenue growth.

The New York-based company, whose formal name is Peloton Interactive Inc., in June submitted a confidential draft submission of its S-1 statement to the SEC. In Tuesday’s public filing, Peloton reported revenues for the year ending June 30 of $915 million against a loss of $245.7 million.

The company drastically widened both its revenue gains (up from $435 million in fiscal 2018 and $218.6 million in 2017) and its losses (down from losses of $47.9 million in fiscal 2018 and $163.4 million in fiscal 2017).

Peloton’s adjusted EBITDA was $(71.3) million in fiscal 2019, $(30.4) million in fiscal 2048 and $(71.3) million in fiscal 2017.

In the IPO filing, Peloton described itself as a “technology, media, software, product, experience, fitness, design, retail, apparel, logistics company,” adding that “above all else, we are an innovation company transforming the lives of people around the world through our ever-evolving fitness platform.”

That platform has certainly transformed the financial profile of Peloton, which was founded in 2012. The company raised $550 million in venture capital funding last year and hit a valuation of $4.15 billion. Sources familiar with Peloton’s plans have said the company is seeking a valuation of somewhere between $8 billion and $10 billion.

In his letter to prospective investors, John Foley—Peloton’s co-founder, chairman and CEO—outlined the company’s philosophy with the opening statement of “we believe that better is in all of us.”

He wrote: “Against prevailing conventional wisdom, and despite countless investor conference rooms full of very smart skeptics, we were determined for Peloton to build a vertically integrated platform to deliver a seamless end-to-end experience as physically rewarding and addictive as attending a live, in-studio class. In Peloton’s infancy, our lean founding team operated from a one-room ‘headquarters’ with heavy black curtains that cordoned off a makeshift cycling studio, equipped with a modest six bikes and a used camcorder. We problem-solved our way from streaming live cycling classes to one hundred members, then to one thousand, and now to over a million members worldwide. It took a proverbial village to build Peloton, and that once-small village has grown into the community that is now the heart of our brand.”

Specifically, Peloton counts 1.4 million total community members, which the company defines as “any individual who has a Peloton account.” Peloton’s connected fitness subscriber base, which includes users with a paid subscription or one that has been paused no more than three months, more than doubled to 511,202 in 2019 from 245,667 the previous year.

And the company said Peloton users completed 58 million workouts in fiscal 2019, with both the number of users and the number of workouts per user increasing each year. On average, Peloton said its connected fitness subscribers completed 7.5, 8.4, and 11.5 workouts per month in fiscal 2017, 2018, and 2019, respectively.

Now the goal is to use its publicly traded status and infusion of cash to boost those numbers further.

“We have significant room to increase our brand and product awareness in both the United States and in our other geographies through television, digital, and social media marketing, as well as our showrooms and word-of-mouth referrals. We continue to broaden our demographic appeal by educating customers on the compelling value of our Connected Fitness Subscriptions,” the company on its brand strategy.

The company has found quite a large audience for its rather expensive products and services. Peloton bicycles and treadmills cost $2,200 to $4,295 apiece; additionally, customers subscribe to the company’s digital library of fitness content, streamed live and on-demand, for $39 per month.

As Peloton prepares to scale up, the company outlined several opportunities (based on industry and company drivers), differentiators, growth strategies and risks in the IPO. Here are some highlights:

Industry Drivers

“We participate in the massive and growing global health and wellness industry,” the company wrote as it cited a 2018 report by the Global Wellness Institute that said “the total global spend on the wellness industry in 2017 was $4.2 trillion,” and an International Health, Racquet & Sportsclub Association report that said “183 million and 62 million people had gym memberships globally and in the United States, respectively, as of 2018.”

Opportunities

The company estimates its total addressable market [TAM] as 67 million households, of which 45 million are in the U.S. “Within our TAM, we estimate that 52 million households are interested in learning more about our Connected Fitness Products without seeing the price. We estimate that our SAM [serviceable addressable market] is 14 million Connected Fitness Products, with 12 million represented in the United States. Historically, our SAM has grown as our brand awareness has increased. With low brand awareness in our current international markets, we believe we will see SAM expand as we make further investments in building brand and product awareness in these regions. We will grow both TAM and SAM as we expand beyond our current geographies and grow SAM as we develop new Connected Fitness Products and content in new fitness verticals. With approximately 577,000 Connected Fitness Products sold globally as of June 30, 2019, we are approximately 4 percent penetrated in our SAM of 14 million.

Differentiators

The company said it is a “category-defining brand with broad appeal.” “Peloton is the pioneer of connected, technology-enabled fitness. We are democratizing access to high-quality boutique fitness by making it accessible and affordable through the compelling value of our unlimited household Connected Fitness Subscriptions and attractive financing programs for the Bike and Tread. We continue to broaden our demographic appeal—our fastest-growing demographic segments are consumers under 35 years old and those with household incomes under $75,000.”

Growth Strategies

Peloton listed the following as growth strategies:

  • Grow brand awareness
  • Continuously improve member experience
  • Launch new products and expand content offering
  • Pursue disciplined expansion into new geographies
  • Invest in our platform
  • Increase profitability through fixed cost leverage

Risks

Peloton listed a host of risk factors in the S-1, which include: past operating losses, inability to attract and retain subscribers; failure to anticipate consumer preferences; competition; loss of supplier partners.

The competition note could be an interesting one to watch as Garmin Ltd. ramps up its stationary bike and connected streaming platform following the company’s acquisition of Tacx. Click here to read more about that deal. Other players in the market include Echelon, Equinox and Icon Health & Fitness.

Goldman Sachs & Co. and J.P. Morgan Securities are managing the IPO as lead underwriters. Peloton’s stock will list under the symbol “PTON.”

This is the first IPO in the active lifestyle in the last 10 months or so. The most recent high-profile IPO in the space occurred last fall with Yeti Holdings Inc. The company’s filing with the SEC projected a raise of up to $100 million with the expectation the company could hit $300 million. Yeti had previously filed to raise the same amount in July 2016 but withdrew the company’s initial filing in March 2018.

Photo courtesy Peloton Interactive Inc.