Peloton Underwhelms Investors By Falling Below Its IPO Price

by | Sep 27, 2019 | Markets

Shares of Peloton fell 11% after the company’s IPO on Thursday.

This week, Peloton joined a growing list of companies that crashed at burned during their initial public offerings. On Thursday, the company’s shares fell 11%, bringing its total market valuation to $7.2 billion. 

Shares of Peloton are currently trading at $25.09, which is lower than its IPO price of $29 per share. This makes Peloton the second-worst IPO of the year, falling short only to SmileDirectClub, which fell 28% in its market debut. 

Peloton’s poor performance even caused Endeavor Group Holdings to postpone its own planned IPO. Last week, WeWork’s parent company postponed its public offering as well. 

The backstory on Peloton

Peloton was off to a shaky start even before its market debut. The company has been criticized due to heavy losses and it’s currently battling a $300 million lawsuit over its music licensing fees.

Peloton makes connected fitness equipment like indoor bikes and treadmills. The company’s fitness equipment is somewhat pricey, with indoor bikes costing $2,245 and treadmills costing around $4,295.

The treadmills come with an HD touchscreen where customers can stream classes. To participate in classes, customers pay an additional $39 per month. 

Many consumers are worried about a coming recession, so investing in fitness equipment and workout classes may not be on most people’s radar. However, Peloton is starting to offer memberships below $20 that don’t require any equipment. This could help the company appeal to more budget-conscious customers. 

And Peloton does have 1.4 million members and it generated $915 million in revenue last year. But the company’s business model comes with hefty expenses as well. Peloton lost $195.6 million last year, which is up from $47.9 million in losses the previous year. 

What’s next for Peloton? 

In a recent interview, Peloton CEO John Foley said that’s he’s trying not to get too discouraged by the company’s stock performance. Foley said, “Obviously, we’d rather have it going the other way, but I don’t think it’s a reflection on our fundamentals or the excitement of investors who came in.”

Peloton does have a compelling business model and its built a strong base of loyal customers. So it’s possible that the IPO miss is nothing more than a temporary setback for the company.