Peloton — the first franken-company IPO

Friday, September 27, 2019 by Robinhood Snacks | Disclosures

How tech companies trying to IPO feel lately

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Hey Snackers,

We crafted today's Snacks from Nasdaq, where Peloton was busy IPO'ing.

So we sat down with the co-founder for our podcast to chat about his original pitch to investors and why the ticker symbol is "PTON" (huge missed opportunity — should've considered "SWET" or "BIKE")

More for your ears on Spotify and iTunes.

Heartbreak
1. Match Group gets sued for misleading hopeful daters with fake likes

Ever get false advertising vibes?... Or think those spend-the-rest-of-our-lives-together messages were from fake people? The FTC might be down to take your case. This week, the FTC announced a lawsuit against Match Group, the owner of Tinder, for misleading millions of potential daters with faux-mance.

Here's how the scheme went down... Match teased singles with fake messages from fake people in order to get them to join Match.com for real.

  • A pop-up ad starts winking at you with the message "He just emailed you! Could he be the one?" Then there's a picture of a guy with perfect facial structure.
  • You click the ad to find love, and end up creating an account. In your messages tab, the handsome dude's account is "unavailable".
  • Turns out that hunk is just a picture and the account doesn't exist. But you've already started paying.
  • From 2016-2018, the FTC calculated that 499,691 singles purchased Match.com subscriptions within 1 day of seeing the untrue ad.
THE TAKEAWAY

Fake ads aren't cool, and this is a bad look... We feel bad for the duped victims, despite their deficient fakeness radars. Match stock fell 7% on Wednesday on this news. Rivals Bumble and Facebook Dating could win some hearts.

Nixed

They're supposed to be celebratory... IPOs feel like graduation or getting your Instagram account verified. But 2019 — the year of the tech IPO — has been the opposite. Talent agency Endeavor just canceled its IPO less than 24 hours before it was supposed to happen. This is the entertainment company that repped Denzel and owns half of Ultimate Fighting Championship.

There are fewer rainbows out there for unicorns lately... That's why Endeavor dipped out. The share price that a company IPOs at matters to its existing investors — they own stock in the private company and want to eventually sell once it becomces public. Here's what's happened to stocks lately once they IPO:

  • Uber & Lyft are down 31% and 43% as investors wonder if they'll ever become profitable.
  • SmileDirectClub and Slack both had painful starts, down 36% and 42%.
  • Peloton is only 1 day in but already sweating.
  • WeWork is a whole different category — Its valuation was $47B the last time it raised money from private investors, and could be re-priced down to a $15B valuation (or less) when/if it IPOs.
THE TAKEAWAY

Private markets were hype, public markets are reality... In 2017, SoftBank scrapped together $100B from insanely wealthy people, companies, and countries to invest huge sums in startups. The venture capital firm gave Uber, WeWork, and Slack gigantic checks to fund their growth, also driving their valuations up. But Wall Street's been more skeptical, slashing those valuations by hammering their stock prices. Now unicorns might wait to IPO until their chests grow profit hairs.

Spun

Take a recovery day... Peloton shares fell 11% after they began trading on IPO day. The interactive fitness platform likes to "sell happiness" — but it mainly streams spin classes to 1.4M able-bodied humans averaging 12 rides/month. That large engaged audience attracts top spin instructors who bump Rihanna to get you up the hill in 3rd position. Here's how it makes money:

  • Hardware: $2,245 spin bikes with screens.
  • More hardware: A newer $4,295 treadmill they call Tread.
  • Software: You drop $39/month to subscribe to all those hill-climb classes and accompanying playlists.

"We're 6 or 7 companies in one"... CEO John Foley's words, not ours. Peloton stretches itself out to include multiple industries, and it's proud of that. But business model hybridization makes it harder for investors to understand what they're buying:

  • Is it a media company like Netflix? It's got original video content.
  • Is it a hardware company like Apple? It's got fancy devices.
  • Is it a tech company like Spotify? It streams music.
  • Or is it a fitness company like Planet Fitness?
  • Peloton's IPO filing document (its S-1) brags it's all of them — plus apparel, logistics, retail, and design.
THE TAKEAWAY

So was the Peloton IPO a success?... Yes for the company, no for investors who bought shares yesterday. Even though the stock price dropped, IPOs aren't only about the trading of new shares. They're used to raise a new round of funding for the company — and Peloton pocketed over $1B from the new shares it issued, more than it first expected. (Listen to our pod for a lot more).

What else we’re Snackin’
  • Beyond-er: Beyond Meat surges 12% after McDonald's tests it out in Canada – and here's the new sandwich name: P.L.T. (plant, lettuce, tomato)
  • Show-off: Tesla jumps 6% after revealing a wild new feature: Summon the car to self-drive to you, plus in-car karaoke mode
  • Refresh: Uber just gave its app the biggest update yet to become "the operating system for your everyday life"
  • Liftoff: Delta is buying 20% of LATAM, Latin America's biggest airline (no blackout dates for this one)
  • Pressed: Luckin Coffee, the Starbucks of China, snags a key partner to introduce juices
Snacks Daily Podcast
  • Our digestible 15-minute interview with Peloton's co-founder and COO Tom Cortese.
  • He wants to tell you why spinning isn't a fad and that content really is king.
Friday
  • Consumer Sentiment Report tells us how you're feeling about the economy

Disclosure: Authors of this Snacks own shares of Tesla, Beyond Meat, and Luckin Coffee

ID: 965412

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