Peloton Interactive Inc. raised $1.16 billion in its U.S. initial public offering — and then its shares slumped, making it the latest unprofitable start-up to underwhelm investors in its trading debut.
The fitness start-up sold 40 million shares for $29 each on Wednesday, after marketing them for $26 to $29. The shares opened Thursday at $27 and slid further. They closed at $25.76 — down 11.2% from their offering price.
This was the third-worst U.S. trading debut in 10 years for companies that have raised at least $1 billion, according to data compiled by Bloomberg. The IPO waters have been choppy lately: Investors have been rattled by the sudden disintegration of WeWork’s plan to go public this month, and after the end of trading Thursday, Endeavor Group Holdings Inc. — which owns talent agency WME-IMG and whose shares were supposed to start trading the next day — abruptly scrapped its plan to go public.
Peloton Chief Executive John Foley told Bloomberg Television that he had “some disappointment” about the reception but was confident in his company’s prospects.
“It’s an interesting time in the markets,” he said. “There’s a lot of political things, business things. There is anxiety. The markets are on edge.”
The IPO makes the company fully funded and will help it focus on adding subscribers in the coming years, he said.
Peloton wasn’t supposed to be the only high-profile start-up to begin trading on the Nasdaq this week.
The listing by WeWork, whose official name is We Co., was expected to raise about $3.5 billion, a person familiar with the matter had said — but potential investors were alarmed by co-founder and Chief Executive Adam Neumann’s propensity to burn through capital and a litany of apparent conflicts of interest. On Tuesday, Neumann resigned as CEO. The office-sharing giant will probably put off an IPO until at least next year, sources have said.
There have been other warning sign for IPO investors.
Though most of the 11 other companies that have gone public this month priced within or above their marketed range, the largest of them, SmileDirectClub Inc., is trading about 30% below its offer price in its $1.35-billion listing.
Peloton’s debut also raises questions about investment banks that have touted high valuations to founders of start-ups that don’t stand up once they hit the public markets.
“The core business is good, but at $27 [per share] we’re setting it up for failure,” said Aswath Damodaran, a professor at New York University’s Stern School of Business. “That’s the danger when the market sets expectations too high.”
Goldman Sachs Group Inc. and JPMorgan Chase & Co. led the offering. The shares are trading on Nasdaq Global Select Market under the symbol PTON.
Founded in 2012, New York-based Peloton describes itself as the “largest interactive fitness platform in the world,” with more than 1.4 million members.
It also has an app that shares its exercise programming with users who don’t own its hardware but pay a monthly subscription fee for the classes, which include yoga, meditation and strength training.
Its basic “connected fitness” subscription costs $39 a month. Its bikes start at about $2,000.
Like many other start-ups that have gone public this year, Peloton told investors that it will stay focused on growth rather than profitability but outlined a future path to profit.
Peloton’s revenue has been steadily increasing, but it still lost $196 million on sales of $915 million during the 12-month period that ended June 30, according to its filings. That compared with a loss of $48 million on sales of $435 million the prior year.
The company’s growth depends on continuing to expand its subscriber base in an increasingly competitive field, as well as keeping current customers.
The United States is one of the largest markets for connected fitness in the world, and Peloton recently expanded into others that sit high on that list: Canada, the U.K. and Germany. Investors are watching to see whether the company’s U.S. success can be replicated elsewhere.