Peloton got off to a sluggish start as a public company on Thursday, closing more than 11 per cent lower on its first day of trading and raising fresh questions about Wall Street's appetite for businesses without a clear path to profitability.
Shares in the the Silicon Valley-based provider of fitness equipment opened at US$27 ($42.90) after it floated 40 million of class A common stock at $29 per share, raising US$1.2 billion.
The share price gave the company a US$7.7b valuation, 83 per cent above the US$4.2b price tag attached to the company after its last round of private fundraising in August 2018.
Shares traded as low as US$24.75 on Thursday — a drop of 14.7 per cent — before finishing 11.2 per cent lower on the day at US$25.76.
The listing was seen as a test of investors' demand for lossmaking companies that burn through cash to grow. Peloton's revenues doubled to US$915 million over the year to June 30, but this has come at a price — the company's losses jumped fourfold over this period to US$196m.
"We are prioritising growth over profitability for the next few years," John Foley, Peloton chief executive, told the Financial Times. "You say losses and cash burn; I say investments."
The company is also facing a US$300m lawsuit from a group of music publishers who claim Peloton has used songs in its workouts without paying licensing fees.
"I'm not worried about it. I don't feel like I have a sword above my head," Foley said of the legal action.
Peloton's IPO comes after several hotly anticipated public offerings have disappointed this year. Uber, which listed in May, is trading about 30 per cent lower than its US$45 a share IPO price, while Lyft, which made its debut in March, has slipped 42 per cent from its US$72 listing price.
WeWork, which was on track to be one of the biggest listings this year, shelved its IPO plans last week. It has since replaced its chief executive after investors raised concerns over the company's governance and leadership.
Peloton sells US$2,200 exercise bikes and US$4,000 treadmills, equipped with 22-inch screens that beam live workouts for a US$40 monthly subscription fee. The group has also launched a US$20 monthly subscription for users who do not own its equipment.
"You will see a lot of investors looking at [Peloton] and saying what are the lessons learned from Uber and WeWork," Michael Underhill, chief investment officer for Capital Innovations, a fund manager that participates in IPOs, said ahead of the trading debut.
"I wish them well, but I don't think this will be a successful IPO."
Written by: Richard Henderson
© Financial Times