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Peloton slides after opening below IPO price in market debut

Key Points
  • Peloton makes cycles and treadmills equipped with screens for users to join live and recorded fitness classes remotely.
  • It boasts 1.4 million members, which it defines as an individual with a Peloton account.
  • The stock listing comes during a tough couple of months for hotly watched and unprofitable IPOs.
VIDEO2:3802:38
Peloton opens at the Nasdaq at $27 after pricing at $29

Shares of Peloton tumbled 11% in the company's market debut Thursday, giving it a market value of $7.2 billion.

The opening trade was $27 per share, below its IPO pricing of $29 per share, which was at the high end of expectations. The offering raised $1.16 billion and initially valued the digital fitness company at $8.1 billion.

The stock listing comes during a tough couple of months for hotly watched and unprofitable IPOs. Last week, WeWork owner The We Company postponed its IPO, following tepid demand for the office-sharing rental company. Earlier this month, shares of online dentistry company SmileDirectClub slid 28% on its debut, the worst market debut for a unicorn start-up this year.

Peloton now has the second worst debut of a unicorn this year, while Uber moves to the third place spot with a loss of 7.62%. Unicorns have a deal or offering size of more than $1 billion.

Shares of Chewy, which went public in June, are down more than a quarter since its IPO. Shares of Slack are down nearly 40%.

"Investors are taking recent losses in IPOs — and investors are fleeing for safety in larger caps and Treasurys," said Kathleen Smith, principal at Renaissance Capital, which manages IPO-focused exchange-traded funds.

VIDEO4:0504:05
Why this investing expert says Peloton's IPO filing is better than WeWork's

Peloton is the first company to make cycles and treadmills equipped with screens for users to join live and recorded fitness classes remotely. It has earned a loyal and avid following of users, who stream its classes from their homes, hotels or offices.

At a time when many companies aspire to the Netflix model of subscription membership, the company boasts 1.4 million members, which it defines as an individual with a Peloton account. Its roughly $2,000 bikes and $4,000 treadmills help it command strong margins.

Given Peloton's high price tag, investors may be wary to bet on the company as recession fears grow. Peloton is trying to appeal to more price-sensitive customers with an app that costs less than $20 a month and does not require equipment.

To cater to people who may not want to invest in its pricey equipment, Peloton started selling digital memberships last year for $19.49 per month. It has roughly 102,000 of these digital subscribers, who can stream yoga, meditation, bootcamp, running and walking classes.

Growing membership has helped Peloton's sales grow to $915 million for the fiscal year ended June 30, up 110% from $435 million in fiscal 2018.

Those sales, though, have come at a cost. Its 2019 net loss widened to $245.7 million, from a net loss of $47.9 million in the prior year, amid growing sales and marketing costs.

Those costs may only grow further as Peloton eyes international growth.

It is also battling litigation, including a $300 million lawsuit lodged by 10 music publishers and artistic groups, which accuse Peloton of using of more than 2,200 songs without licensing even one.

Peloton is working with underwriters including Goldman Sachs and J.P. Morgan. Its stock trades on the Nasdaq under the ticker symbol PTON.

Its investors include Kleiner Perkins, L Catterton and NBCUniversal.

Peloton made it onto CNBC's "Disruptor 50" list the past two years.

Disclosure: CNBC parent Comcast-NBCUniversal is an investor in Peloton.