Morning Markets: Peloton is lining up banks for an IPO. Let’s remind ourselves what we know about its performance as it heads towards a flotation.
Peloton, maker of expensive in-home bikes married to streaming spin classes, is looking to secure banks for an eventual IPO, according to the Wall Street Journal. The news isn’t surprising from the richly-valued Peloton; the company’s CEO said last year that his company would debut in 2019, for example.
If Peloton does manage an IPO this year, it will have demonstrated that at least one low-tech device can, in fact, be made successfully “smart” through the inclusion of high-tech items into a traditionally analog device. Peloton riders, who buy their hardware and subscribe to workout content, are somewhat risible as yuppies always are, but the company that their sweat powers could be a capitalist workhorse.
It will depend on margins, I think.
Peloton has posted material revenue and strong top-line growth in recent years. The subscription exercise shop put up around $400 million in revenue during 2017 and is on said to be on track for $700 million in its current fiscal year. That’s the sort of growth that investors love from venture-backed companies like Peloton.
But unlike software companies which purely rent their code to other companies, Peloton has two businesses: hardware (selling bikes and, recently, treadmills), and subscription content (a monthly $39 fee). If you had to guess which of the two will sport a higher gross margin, which would you pick?
The easy answer is the subscription content, and I think that that’s right, but I wonder if the hardware margins are as low as I initially thought, or the content as high-margin as investors likely hope. In short, I can’t get a great read on how high-quality Peloton revenue is from what we know externally.
That makes Peloton’s eventual S-1 filing all the more exciting a prospect; if the company has strong margins, its 75 percent year-over-year revenue growth is killer. At lower margins the results become merely good.1 We’ll see.
But there’s a lot of money wagered on Peloton’s side. I asked our own Savannah Dowling to list out Peloton’s funding for us, which looks like this:
That’s a total of $994.7 million in raised capital, most recently at a$4.15 billion valuation. No pressure, Peloton.
Top Image Credit: Li-Anne Dias.
Why? Because Peloton has raised oodles of capital to promote and grow itself; the growth is partially predicated on Peloton’s venture-fueled promotional run. If the blitz brings in revenue that isn’t particularly profitable, the company could struggle against its private-market valuation↩