Monthly Archives: October 2019

Peloton’s IPO Falls Flat: Implications for the Future IPO Market

By Anne Luquette, J.D. Candidate 2022 | Posted on

On September 26, 2019, Peloton Interactive Inc. (“Peloton”) launched its IPO – priced at $29/share and ended at $25.76/share (down 11%)*. As a result, Peloton’s IPO became the second-worst performing IPO of 2019 and the third-worst debut offering since the financial crisis. Peloton offers fitness equipment integrated with a workout-streaming subscription service that can be purchased together or separately. The company raised $1.2 billion by selling 40 million shares at $29/share, and the launch of the IPO resulted in $900 million dollars of investor capital lost.

According to Peloton’s filings with the SEC, the company sells stationary bikes for $2,245, treadmills for $4,295, and connected fitness subscriptions for either $19.49/month or $39.00/month. In 2019, the company generated $915 million in revenue (up 110% from 2018) but incurred net losses of $195.6 million, which are nearly quadruple the losses from 2018.

Experts attribute Peloton’s disappointing IPO to an unrealistically high valuation of its stock price – ranging from $26/share to $29/share – as well as the company’s decision to sell at the upper limit of that range. Unfortunately, the increasingly common divergence between VC valuations and market expectations has resulted in disappointing IPO launches (Lyft and Uber), and caused companies to abandon their planned IPOs altogether (WeWork and Endeavor).

Although some may interpret this recent trend as an indicator of diminished investor confidence in the IPO market, it is likely that the disparity between valuations in the private sector and expectations in the public market is creating unreasonably high IPO prices. Professor Aswath Damodaran from NYU Stern School of Business recently stated, “[VCs are] overestimating the value of scaling up and underestimating the value of the business model.” In response, investor confidence in companies like Peloton, Uber, Lyft, and WeWork that focus solely on massive growth and scale without clearly delineating a plan to increase profitability appears limited.

Peloton launched its IPO without the typical indicators of profitability. By coming to the market at a loss, Peloton discouraged investors from having confidence in its valuation. Additionally, Peloton filed with a dual-class share structure, presumably to retain more control over the company, but this certainly deterred many investors that, as a rule, do not invest in this stock structure.

What this means for Peloton’s future remains to be seen, but it may indicate that companies looking to initiate an IPO should be more conservative with their valuations, come to the market with a clear path for profitability, and align more closely with market expectations going forward.

*When this article was written, Peloton was trading at $22.33 (down 23% from IPO).

Peloton’s IPO Falls Flat: Implications for the Future IPO Market

Vox Media Acquires New York Magazine

By Gayatri Raghunandan | Posted on

Vox Media announced its acquisition of New York magazine along with its digital assets in an all-stock transaction in September 2019. A press release by New York Magazine revealed that Jim Bankoff, Vox Media CEO and chairman, will continue to lead all aspects of Vox Media. Pamela Wasserstein, chief executive of New York Media, will serve as president and have a seat on the company’s board of directors. According to Bankoff and Wasserstein, the deal is a logical step, which will not diminish the brands of either company.

New York Magazine, which was first published nearly fifty-one years ago, laid off at least five percent of its staff this year and has recorded a $10 million loss each year. Earlier in the year, the magazine also witnessed its editor-in-chief, Adam Moss, stepping down after fifteen years in the position. However, amidst such changes, Jim Bankoff has recorded that there would be no personnel changes within any of the magazine’s related publications or even within any of the Vox media brands, which include The Verge, Eater, Curbed, Vox and SB Nation. This statement has been surprisingly reassuring following the large-scale restructuring of New York Magazine, which laid off sixteen full-time staffers and sixteen freelancers or part-time employees.

Many experts say that this is a merger driven by shared ambition and that Vox’s growth trajectory and success in developing premium editorial brands is a driving force of this acquisition. The combination looks to diversify various forms of media and is supported by the nature of Vox Media, which was reshaped by Jim Bankoff. At present, Vox’s model relies less on digital advertising, yet boasts of a sizable profit on a revenue of $185 million, as reported last year. The company also recently negotiated a production deal with streaming service Hulu to create a series of TV shows. The deal was followed by another production agreement with Netflix. Vox’s revenue has been further enhanced by licensing its content management system, Chorus. Keeping in mind Vox’s recent successes, the rationale behind this merger has been firmly stated by Bankoff, who calls this combination in the digital media industry, most unique and different from all those mergers in the industry which have emerged out of desperation or for pure financial engineering.

Following the consummation of this transaction, Vox Media is expected to remain profitable and perhaps even increase its revenue by $300 million by the end of 2020. Vox Media has already raised more than $300 million, which includes $200 million from NBCUniversal. Further, according to the estimations of both Bankoff and Wasserstein, the combined sites would have at least 125 million unique monthly visitors. While the value of this transaction remains undisclosed, it is expected to close later this year.

Vox Media Acquires New York Magazine