Peloton stock spins in reverse during trading debut as IPO market cools down

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Shares of Peloton Interactive Inc. backpedaled on Thursday after the connected-fitness company held its initial public offering amid skepticism about fast-growing tech names.

Peloton stock PTON, -11.17%  opened at $27, $2 below its IPO price of $29, and headed lower from there to eventually close at $25.76, 11.2% lower than the IPO price. Peloton raised $1.16 billion through its public offering at a valuation of around $8 billion, and sold an additional $100 million in shares at the IPO price to an investor that had previously provided venture funding.

Peloton sells spinning bikes and treadmills that connect to the internet and have touch screens, along with subscription offerings that let users participate in virtual fitness classes. A Peloton bike starts at $2,245, while a Peloton treadmill begins at $4,295.

Peloton IPO: 5 things to know about the interactive exercise-machine company

Though Wall Street gave a generally warm reception to newly public companies with recurring revenue streams earlier in the year, sentiment has been weaker in recent months. Peloton Chief Financial Officer Jill Woodworth said that the company noticed headlines expressing “concern about high-growth tech companies and profitability” as Peloton embarked on its IPO roadshow, though she found that investors she spoke with “understand we’re both growth-focused and very disciplined.”

The company pays for a lot of its subscription-focused marketing expenses through the sale of its bikes, Woodworth said in an interview with MarketWatch.

Peloton saw revenue more than double in fiscal 2019, to $719.2 million from $348.6 million, but the company’s losses swelled as well. Peloton reported a net loss of $195.6 million for the period, compared with $47.9 million a year prior.

“We obviously wish the stock traded better on the first day, but we’re in it for the long haul and are excited for capital to continue to grow our business,” Woodworth said. She pointed to plans for new products and software as well as further international growth, as the company looks to expand into Germany shortly.

For more: IPO investors are pushing back on ‘growth-at-all-costs’ private companies

Woodworth also discussed Peloton’s music-licensing efforts, which saw the company establish direct relationships with labels and publishers so that instructors could incorporate popular music into their classes. Music licensing costs totaled $50.6 million in the past three years, according to the company’s IPO prospectus.

“We don’t expect to have any leverage in those talks over time, but we’re still able to achieve very healthy growth margins in the subscription business,” she said.

Peloton’s IPO comes as the Renaissance IPO ETF IPO, -0.79%  has dropped 6.6% over the past three months and as the S&P 500 index SPX, -0.24%  has ticked up 2.4% in that time.