Weighing Peloton’s opportunity and risks ahead of IPO

Exercise tech company Peloton filed confidentially for IPO this week, and already the big question is whether their last private valuation at $4 billion might be too rich for the appetites of public market investors. Here’s a breakdown of the pros and cons leading up to the as-yet revealed market debut date.

Risk factors

The biggest thing to pay attention to when it comes time for Peloton to actually pull back the curtains and provide some more detailed info about its customers in its S-1. To date, all we really know is that Peloton has “more than 1 million users,” and that’s including both users of its hardware and subscribers to its software.

The mix is important – how many of these are actually generating recurring revenue (vs. one-time hardware sales) will be a key gauge. MRR is probably going to be more important to prospective investors when compared with single-purchases of Peloton’s hardware, even with its premium pricing of around $2,000 for the bike and about $4,000 for the treadmill. Peloton CEO John Foley even said last year that bike sales went up when the startup increased prices.

Hardware numbers are not entirely distinct from subscriber revenue, however: Per month pricing is actually higher with Peloton’s hardware than without, at $39 per month with either the treadmill or the bike, and $19.49 per month for just the digital subscription for iOS, Android and web on its own.

That makes sense when you consider that its classes are mostly tailored to this, and that it can create new content from its live classes which occur in person in New York, and then are recast on-demand to its users (which is a low-cost production and distribution model for content that always feels fresh to users).

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Zoom outperforms in first-ever earnings report

2019 is a great year for Zoom (Nasdaq: ZM). The company outperformed analyst expectations with the release of its first earnings report on Thursday.

The profitable video communications business, which went public this April in one of the year’s most successful initial public offerings, posted revenues of $122 million for the three months ended April 30, 2019, representing a year-over-year increase of 109%.

The Zoom stock is rising in after-hours trading following the news. Zoom closed up 2% Thursday at just over $79 per share. The stock has been trading at more than double its initial offering price in the two months following its IPO.

“In our first quarter as a public company, strong execution and expanding adoption of Zoom’s video-first unified communications platform drove total revenue growth of 103% year-over-year,” Zoom founder and chief executive officer Eric Yuan said in a statement. “Delivering happiness to our customers is our number one priority. If we keep them happy, we believe we will succeed today and in the future.”

Zoom, once a relatively under-the-radar tech unicorn, continues to defy expectations. The company priced its IPO back in April at a meager $36 per share only to pop 81% at its Nasdaq debut.

In its first earnings report, the company beat expectations once again. Analysts had expected revenue of $111.4 million with adjusted earnings per share of just under 1 cent, compared to Zoom’s confirmed earnings of 3 cents per share.

For the full year, San Jose-based Zoom expects total revenue of between $535 million and $540 million and non-GAAP income (loss) from operations of between $0 and $3 million.

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Slack narrows losses, displays healthy revenue growth

Workplace messaging powerhouse Slack filed an amended S-1 with the U.S. Securities and Exchange Commission on Friday weeks ahead of a direct listing expected June 20.

In the document, Slack included an updated look at its path to profitability, posting first-quarter revenues of $134.8 million on losses of $31.8 million. Slack’s Q1 revenues represent a 67% increase from the same period last year when the company lost $24.8 million on $80.9 million in revenue.

For the fiscal year ending January 31, 2019, the company reported losses of $138.9 million on revenue of $400.6 million. That’s compared to a loss of $140.1 million on revenue of $220.5 million the year prior.

Slack is in the process of completing the final steps necessary for its direct listing on The New York Stock Exchange, where it will trade under the ticker symbol “WORK.” A direct listing is an alternative approach to the stock market that allows well-known businesses to sell directly to the market existing shares held by insiders, employees and investors, instead of issuing new shares. The method lets companies bypass the traditional roadshow process and avoid a good chunk of Wall Street’s IPO fees.

Spotify completed a direct listing in 2018; Airbnb, another highly valued venture capital-backed business, is rumored to be considering a direct listing in 2020.

Slack is currently valued at $7 billion after raising $1.22 billion in VC funding from investors, including Accel, which owns a 24% pre-IPO stake, Andreessen Horowitz (13.3%), Social Capital (10.2%), SoftBank, T. Rowe Price, IVP, Kleiner Perkins and many others.

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CrowdStrike sets terms for $378M Nasdaq IPO

CrowdStrike, in preparation for its Nasdaq initial public offering, has inked plans to sell 18 million shares at between $19 and $23 apiece. At a midpoint price, CrowdStrike will raise $378 million at a valuation north of $4 billion.

The company, which develops cloud-native endpoint protection software to prevent cyber breaches, has raised $480 million in venture capital funding to date from Warburg Pincus, which owns a 30.2% pre-IPO stake, Accel (20.2%) and CapitalG (11.1%), according to its IPO prospectus. The business was valued at $3.3 billion with a $200 million January 2018 Series E funding.

Sunnyvale, Calif.-based CrowdStrike outlined its IPO plans two weeks ago. The company plans to trade under the ticker symbol “CRWD.”

The cybersecurity unicorn follows several other highly valued venture-backed startups to the public markets, including Uber, Lyft, Pinterest, PagerDuty and Zoom. CrowdStrike’s offering will represent only the second cybersecurity IPO in 2019, however. It follows Israel’s Tufin Software Technologies, which went public earlier this year. Last year, for its part, saw the IPOs of Zscaler, Carbon Black and Tenable.

Founded in 2011 by former McAfee executives George Kurtz and Dmitri Alperovitch, CrowdStrike is up against steep competition in the cyber protection space. It’s battling the likes of McAfee, Cylance, Palo Alto Networks, Symantec, Carbon Black and more.

The business’ revenues, fortunately, are growing at an impressive rate, increasing from $53 million in 2017 and $119 million in 2018 to $250 million in the year ending January 31, 2019. In the quarter ending April 30, 2019, its revenues shot up from $47.3 million in 2018 Q1 to between $93.6 million to $95.7 million.

CrowdStrike is also backed by IVP, March Capital Partners, General Atlantic and others.

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Luckin leaves bitter aftertaste, now trading below IPO price

In the first few days following Luckin Coffee’s initial public offering, the stock chart for LK looked like a roller coaster. Now it’s looking more like a free fall.

The Chinese Coffee chain successfully completed its highly anticipated offering roughly a week ago, raising more than $550 million after pricing at $17 per share, the high end of its $15-$17 per share range.

Luckin was met with a warm reception from the markets, with the stock skyrocketing roughly 20% to a greater than $5 billion market cap in its first day of trading. However, concerns over the company’s lofty valuation, major cash burn and uncertain path to profitability have caused the stock to nosedive since.

Luckin has dropped around 25% since closing its debut trading day at $20.38 per share, and 40% from its intraday peak of $25.96. As of Friday’s open, Luckin stock sat at $15.44, now well below its IPO price.

Leading into the IPO, Luckin had already been the topic of much debate. Luckin had filed for its public offering just a year and a half after its founding. And prior to its filing, Luckin had raised more than $500 million in venture capital through four fundraising rounds that all occurred just within roughly one year’s time, per PitchBook and Crunchbase data.

As Luckin’s valuation continued to level up, many questioned the sustainability of its business model and heavily discounted pricing strategy, with Luckin’s limited operating history already pointing to substantial losses and heavy cash outflows.

The concerns have followed Luckin into the public markets, and it’s unclear whether the stock’s early struggles are just growing pains or a broader indication that public investors have limits to the levels of nascency and unprofitability they are willing to accept and bet capital on.

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