
Peloton S-1 - harryh
https://www.sec.gov/Archives/edgar/data/1639825/000119312519230923/d738839ds1.htm
======
uptown
Under the risks section:

"We derive a significant majority of our revenue from sales of our Bike and a
decline in sales of our Bike would negatively affect our future revenue and
operating results;"

What many people don't know is that you can access all their classes using
your own exercise bike and their apps, paying a little over 1/4 of the normal
monthly subscription fee. The limitations of this approach is that you don't
get to participate in the leader-board gamification of your workout, and your
bike won't have the integrated sensors to tie your output back into their app,
but for a fraction of the price of both the bike and the service, it's a good
way to either test out their service to determine whether it's something
you're into, or to permanantly utilize most of their product at a fraction of
the cost.

~~~
pattisapu
I have it and I like how the whole package works together -- in particular,
how certain teachers are very careful to show how to keep good form for your
back etc.

When I see a guy on the same exact machine as me, showing bad form like a
slightly curved back or whatever with the heels, and then correcting to the
proper form, referencing the same bike, on a giant Android tablet in front of
me, that is very helpful.

And this whole thing is sitting right there in my room as a ready to go thing
whenever -- taking mini-obstacles out of the way like going to the gym,
studying proper form without someone having to ape it for me, etc. are
admittedly pretty trivial things -- for a lazy sack like me, having all these
done and together has made a difference.

"It just works."

(Edited for grammar.)

~~~
thrav
“You can do everything an iPod can do with a _____ for a fraction of the
price.”

I can’t even remember what the competitors were, because none of that matters
if it’s not effortless to use.

~~~
pattisapu
I was a naysayer about smartphones/iPhones -- why would I want all these
things globbed into one thing instead of my beautiful modular setup now?

Here, too, I thought -- it's an Android tablet bolted to an exercise bike.

Not saying that either the Peloton or the iPhone were epoch-shattering
brilliances. Just noting that, as you suggest, sometimes putting together
things that used to be separate is, well, a good and useful thing.

~~~
reitoei
It's all about the experience. Same as all early Apple "i" products... the
same tech was already out there, Apple just polished it way better than
everybody else.

------
discreteevent
This thread on the pretentiousness of the peleton ads (which clearly work for
them) is a bit of fun:

[https://mobile.twitter.com/clueheywood/status/10896997623312...](https://mobile.twitter.com/clueheywood/status/1089699762331217920?lang=en)

------
jakarta
Nice unit economics: Our Connected Fitness Subscriber Lifetime Value for
fiscal 2017, fiscal 2018, and fiscal 2019, was $267.1 million, $604.4 million,
and $1,053.8 million, respectively, or $3,433, $4,015, and $3,593 per
Connected Fitness Subscriber, respectively.

As we expand our content offering, develop new interactive software features,
and grow our community of Members, we believe we can maintain a low Average
Net Monthly Connected Fitness Churn, resulting in a high Connected Fitness
Subscriber Lifetime Value. In addition, with the growth of our Connected
Fitness Subscriber base over time, we expect to improve our Subscription
Contribution Margin as we scale our fixed content production costs.

Net Customer Acquisition Cost (profit) can be calculated as Adjusted Sales and
Marketing Expense (which excludes depreciation and amortization expense and
stock-based compensation expense) less Adjusted Connected Fitness Product
Gross Profit (which excludes depreciation and amortization expense and stock-
based compensation expense). Our Net Customer Acquisition Costs (profit) for
fiscal 2017, fiscal 2018, and fiscal 2019, was $14.2 million, $(4.9) million,
and $1.6 million, respectively, or $183, $(33), and $5 per Connected Fitness
Subscriber added, respectively. We believe we will continue to drive rapid
payback and efficiencies in Net Customer Acquisition Costs (profit) by further
leveraging sales and marketing investments as a result of heightened brand
awareness and growing word-of-mouth referrals. Changes in Connected Fitness
Product margins or sales and marketing expenses may result in an inability to
fully offset our customer acquisition costs.

~~~
michaelwilson
What's amazing is that they get people to pay _more_ than they would - or
would even think of paying - for a streaming service like Netflix or Hulu, but
their content creation costs are obviously a fraction of what it take to
produce even one show on those platforms.

~~~
gamblor956
What's really crazy is that the cost of 1 month of a Peloton subscription is
less than the cost of 2 spinning classes in a real-world spin studio.

If you spin enough, you actually do save money with a Peloton. $40/month +
$2000/bike vs $30/class (in LA/NY/SF) results in a breakeven point of roughly
4 months if you spin every weekday, which many spin aficionados do.

~~~
onlyrealcuzzo
What's really crazy to me is how expensive those spin classes are, how many
people go to them, how little they pay the stay, and how all those companies
still lose a ton of money!

~~~
justinator
How much do instructors get per class? $25?

~~~
scarface74
Yep.

------
tempsy
It really makes we wonder how we could be on the verge of a recession when
companies like this become successful? Maybe I'm just too cheap to ever buy
something like this but it feels like a mass marketed luxury good that
requires a decent level of consumer confidence to have succeeded.

~~~
Alex3917
On the surface this is basically the Juicero of fitness equipment. If you want
a good piece of workout equipment, buy a Concept2 erg. If you want a bike, you
can get a carbon-frame bike for the same amount of money and then just get a
trainer for it. Ostensibly there is zero reason for this to exist.

The one argument in its favor is that youth sports are usually very heavily
subsidized by masters sports. So if you weren't on a varsity sports team in
high school or college and didn't learn how to work out properly, then it's
easily 5x more expensive to do so as an adult. So maybe there is some value in
having someone to teach you how to do basic cardio.

~~~
gamblor956
This is nothing like Juicero.

Peloton addresses two real needs in the exercise marketplace: home-based
classes, and high-quality exercise machines. It simply combined both into one
product.

There is huge demand for the former, especially from white-collar workers with
high demands on their free time, and a a fair amount of demand for the latter.

At $2000, a Peloton bike is $1000 to $2000 cheaper than the cheapest carbon-
frame bike I could find on Google, and more than $3000 cheaper than a racing
or tri-bike. For indoor use, you'd also need a trainer, adding another
$600-$2000 to the cost (depending on the trainer you get).

Generally, the people I know that have carbon fiber frames also have several
other bikes, each for a different niche, and the Peloton would slot right into
the indoor spin use case.

~~~
Alex3917
Bikes are usually 20 - 35% off when the next years models come out, which e.g.
is this week for Cannondale. You can easily get a carbon Synapse for less than
2K from almost any bike shop that sells them, or even REI. It’s an endurance
bike, but for doing low cardio you wouldn’t necessarily want a race bike
anyway.

~~~
gamblor956
_You can easily get a carbon Synapse for less than 2K from almost any bike
shop that sells them, or even REI._

True, REI has the Synapse on sale for $1700 right now not including delivery.
Once you add a trainer of the equivalent functionality as the Peloton trainer,
you're looking at $2500 spent. Add in a screen, and you're looking at $2700
for a small screen or $3500 for a similar-size screen as on the Peloton.

~~~
mtberatwork
But when you decide to join your local cycling club or even get outside for a
spin, you are good to go with the Cannondale ;) ... not so much with your
stationary Peloton. Also, the highest priced CycleOps trainer on REI's site
right now is $420. So $2120 with trainer...as for the screen, most people
buying carbon road bikes and trainers probably already have a working flat-
screen to spare.

------
SanchoPanda
They seem to have been careful to take some lessons from the soul cycle S-1
and roadshow,
[https://www.sec.gov/Archives/edgar/data/1644874/000119312515...](https://www.sec.gov/Archives/edgar/data/1644874/000119312515270469/d844646ds1.htm).
That one was eventually pulled.

The subscription part is interesting, they did 4x the sales in bikes
-connected fitness products- as 2 years ago (719/183), and cogs is ~4x
(410/113). But subscription revs are up 5x (181/35) and cogs on that are only
up 3x (100/3).

------
uptown
The Peloton "How I Built This" episode is well worth a listen for anyone
interested in the company.

[https://www.npr.org/2019/04/05/710439824/live-episode-
peloto...](https://www.npr.org/2019/04/05/710439824/live-episode-peloton-john-
foley)

~~~
dave_aiello
Good call.

At 33:30, John Foley and Guy Raz start talking about the Kickstarter and how
it didn't achieve its goals.

At 35:00, they talk about the the initial pricing for the bike being breakeven
($1,200) and how that didn't work. The feedback was "at $1,200 [the bike]
'seems cheap', 'it sounds cheap.' And so, we said, well, let's increase the
price...."

You can listen to more of the podcast, unpack this, and analyze what the
reveals about that the demographics of the customers with whom they've
connected so far. Without any intent to be critical, the HN readers who think
the bike is too expensive have the opposite reaction to the people who became
customers.

I suspect the average Peloton customer has more money than time.

------
tguedes
Wow I was heavily skeptical of Peloton until these numbers. I would have
thought who would pay a few thousand dollars for a machine and then an
additional $39 a month. But 92% of all customers who have purchased the
equipment are still subscribers at the end of June 2019, that is extremely
impressive.

~~~
matwood
Do you spin, and have you ridden a Peloton? Nearly every person I know who
likes spin enough to go to spin studios buys a Peloton after test riding one.
They did that good of job nailing and improving the spin studio experience.

Their risk is that spin studios are a luxury item over and above gym
memberships and will be the first things cut in a recession.

------
kgwgk
There are some funny things in the Risk Factors section:

“We have identified material weaknesses in our internal control over financial
reporting and if our remediation of such material weaknesses is not effective,
or if we fail to develop and maintain an effective system of disclosure
controls and internal control over financial reporting, our ability to produce
timely and accurate financial statements or comply with applicable laws and
regulations could be impaired.”

There are also three long subsections about music licensing (edit: and music-
related legal proceedings mentioned in multiple places).

~~~
uptown
"There are also three long subsections about music licensing."

I'm a customer. I've noticed that some of their old classes are no longer
available, presumably due to music licensing issues.

~~~
timdorr
Yup: [https://www.cbsnews.com/news/peloton-lawsuit-fitness-
company...](https://www.cbsnews.com/news/peloton-lawsuit-fitness-company-sued-
for-stealing-music/)

------
tbrock
I’m a mega bear on this. It’s Juicero 2.0

The bike’s only have a lifetime of a couple years and the experience isn’t
that great. The promise of software upgrades only take it so far until planned
obsolescence kicks in.

This is just creating a fleet of useless metal that will have software
vulnerabilities up the wazoo in a decades time.

~~~
EForEndeavour
I'm genuinely curious:

> The bike’s only have a lifetime of a couple years

What's your source for this figure?

> and the experience isn’t that great.

According to whom? You? Or the legions of apparently very satisfied
subscribers?

------
eddyg
I use a Keiser M3i with the Peloton app on an iPad. It’s great. The Peloton
app records heart rate and cadence via Bluetooth. I run the Keiser app on my
phone to record additional metrics, such as power. Much better solution than
being tied to a proprietary Peloton bike while still enjoying the benefits of
the always-fresh Peloton classes.

Mike biggest complaint is the music change. Way too many knock-off versions of
songs by “studio musicians” instead of the original artists...
[https://www.engadget.com/2019/04/25/peloton-users-music-
comp...](https://www.engadget.com/2019/04/25/peloton-users-music-complaints-
licensing-lawsuit/)

~~~
PierceJoy
Have you ridden the Peloton bike? Wondering it compares to the Keiser, which I
like quite a bit.

------
pazimzadeh
I have been waiting for essentially this, but with racing games onscreen. Does
anyone know if they allow, or plan on allowing third party apps and games?

I can see a game like Mario Kart being very popular.

~~~
veritas3241
That would be amazing... I've never tried a spin class but if I knew that I
could play Mario Kart or Burnout or something like that on the bike... what an
idea!

------
trimbo
I will invest in this company because I love the product and so does everyone
I know who uses it.

But the general and administrative costs in 2019 seem ridiculously high. The
tender offer last year only makes up 1/3 of that increase. What's up with
that?

------
stilist
Am I doing correct math that they spent about $1200 per new subscription?
$324m sales & marketing / (511k - 246k) new members in 2019 = ~$1222.

$915000000 revenue / 1800 full-time employees = ~$500k revenue per employee,
though.

------
asmithmd1
I was surprised to see how low the gross margin is on their subscription
business, it has only recently broken above 50%. The cost of revenue for their
subscription business includes licensing the music in their workouts, and the
costs to operate their NYC and London studio.

I was also surprised to see the margins on the bike itself are about the same
as on the subscription business. They have room to lower the price of the
bikes to get more customers hooked on that sweet, sweet recurring subscription
revenue.

------
woeirua
These guys are following the Uber business model. Burn as much cash as
possible up front to generate buzz and big numbers for the IPO, worry about
profitability later. The problem is that, as Uber has shown, profitability
never comes. Peloton will limp around for a few years after the executives
have all taken their sweet IPO money home and become a shell of what it once
was. Too bad.

------
mrnobody_67
85million cumulative workouts as of June 2019... really low actual usage
relative to revenue.

~~~
justinator
Do they follow the same model as a big chain gym? Hope people get the
subscription, but never use it?

~~~
michaelmior
I don't think their marginal costs increase the same way as a gym. People
using their bikes more just means somewhat higher load on their servers for
users using the workouts (and I suppose more demand for new content). There is
a cost, but I'm guessing it's much lower than the cost of the added wear on
gym equipment and the need for extra staff and other costs associated with a
gym.

------
cbhl
Is it normal for the "20-votes-per-share" class B stock to "convert
automatically upon ... (ii) ten years from the closing of this offering"?

~~~
SanchoPanda
Earlier of three events with a hard cap at 10 years, not really. Thats a bit
of peace offering to investors re: dual(+) share classes and control.

------
pushcx
A figure in the "Opportunity" section has two large inverted cones showing
total addressable market.

The lie factor[0] of the "Peloton's Current Markets" chart is 4.2. The lie
factor of the "U.S. Only" chart is 5.8.

[0]: [https://infovis-wiki.net/wiki/Lie_Factor](https://infovis-
wiki.net/wiki/Lie_Factor)

------
mthurmond
I just wrote this post to summarize my views on the S-1. Focused more on the
skeptical side, since I know there will be plenty of euphoria to counter-
balance it:

[https://medium.com/@mattthurmond/a-skeptical-look-at-
peloton...](https://medium.com/@mattthurmond/a-skeptical-look-at-
pelotons-s-1-3f0a5d67ddb3)

------
mrnobody_67
Churn rate is better than I would have guessed.

Losses going up 4x year over year to $200m on $1b in revenue is pretty insane
though.

~~~
jdalgetty
When you spend that much on the bike you'd better get your money's worth.

~~~
mrnobody_67
I bought nearly new equipment for my home gym for 1/5th of the retail value on
Craigslist... tons of sellers out there.

~~~
TMWNN
Is it true that the best deals are in February, after people realize they
won't use the equipment they bought in January for New Year's resolutions?

------
buttcoinslol
I wish you didn't have to wait a week to buy options for newly listed stocks,
I want to write calls and buy puts on this ticker

Once consumer credit dries up, this company goes _poof_

------
sharps_xp
Given how expensive a bike is, I imagine their market being even smaller than
the apple iPhone market and a subscription-based health system can arguably be
as important to someone as an iPhone, but it doesn't really have that "i want
that" shine that iPhone does. I imagine they'll see a lot of growth short term
and taper off really soon maybe after 6 years.

~~~
askafriend
Have you seen how expensive a gym membership is?

~~~
mdorazio
Under $30 a month for a 24 hour fitness membership via Costco with zero
initial cost ;)

"Nice" gyms like Equinox are of course significantly more. It's important to
segment the gym market into different tiers and niches, and figure out what
the market size is for each. Same as for direct equipment sales like this.

To your point, though, I suspect the people who would pony up for a Peloton
are the same people who would splurge for a $100/month gym membership instead
of a 24 hour, Planet Fitness, or local hole in the wall gym.

~~~
gamblor956
Spin classes cost $30/month at spin studios. The people going to those classes
are Peloton's target market, not the people content to spin at the local 24
hour fitness.

~~~
mdorazio
What city are you in? Here in Portland, spin classes are more than double
that. I think Peloton's market overlap is a combination of people who would
sign up for Spin classes at a dedicated studio, people who would sign up for
Spin classes at a nice gym that gives them as part of a membership, and people
who think cycling is a good workout and have high disposable income, but no
desire to join a real class or gym of any kind.

It's obviously not for people like me who would happily buy a set of used free
weights for a few hundred bucks if I had a garage or basement.

------
anotherareaman
if you need all the S-1 tables in one excel file (free but collects an email;
FD: I work there) [https://get.sentieo.com/peloton-
ipo/](https://get.sentieo.com/peloton-ipo/)

------
rickyc091
Does anyone know if fitness benefit reimbursement would apply to these?

------
rossdavidh
TLDR; "We have incurred operating losses each year since our inception in
2012, including net losses of $(71.1) million, $(47.9) million, and $(195.6)
million for fiscal 2017, 2018, and 2019, respectively, and expect to continue
to incur net losses for the foreseeable future..."

~~~
adtac
Aha, this is what the cool kids call growth hacking! Exponential growth in net
loss YoY. I've been a complete idiot trying to grow the curve in the other
direction.

~~~
icedchai
This is typical of most "growth" companies. Yeah, the revenue doubles.... but
so do the losses.

------
whalesalad
Can't help but start to think that everyone is cashing out before the
impending recession.

~~~
michaelvoz
IPO takes months and months of effort and planning. It is not as short term as
you seem to imply.

~~~
blawson
Also looks like they are already profitable, and growing like crazy.

EDIT: my bad interpreting the loss format, they are not profitable.

~~~
fbonetti
> We have incurred operating losses in the past, expect to incur operating
> losses in the future, and may not achieve or maintain profitability in the
> future

> We have incurred operating losses each year since our inception in 2012,
> including net losses of $(71.1) million, $(47.9) million, and $(195.6)
> million for fiscal 2017, 2018, and 2019, respectively, and expect to
> continue to incur net losses for the foreseeable future.

They've never been profitable.

~~~
blawson
My mistake, I interpreted the $(...) values as being negative losses.

------
pastor_elm
another company i could have gotten in on on the ground floor for some stock
options but was too pragmatic to think they'd be successful

~~~
floatingatoll
Pragmatic in what way?

