Peloton shares fell on Friday for a second day since going public. The company has now fallen 15% from its IPO share price of $29.
That's not the only warning sign in the IPO market. Endeavor shelved its IPO one day before its market debut, and WeWork's path to become a public company has been muddied by CEO drama, worries over profitability, and demand concerns.
Four experts weigh in on what all this means for the IPO market.
Rett Wallace of Triton Research says Peloton has been unfairly lumped in with the rest of the disappointing IPOs this year.
"The difference between Peloton and Endeavor is Peloton got done at the high end of the range, raised $1.2 billion and is worth $11 billion. WeWork and Endeavor said we'll do this later, you know, or not at all. The window, I think, is going to be more influenced by the inventory. Since Lyft, what we've seen is like nine really traditional software companies go public — Data Dog, Ping Identity, just the most recent ones — doing great, but the misfit toys, you know, the Ubers, Lyfts, Fiverrs having more trouble. ... It seems like the market sort of confined Peloton to the misfit toys a little bit yesterday."
Robert Herjavec of Herjavec Group says no matter how great Peloton's business model is, the current IPO environment means it will be treated harshly.
"I really thought Peloton was going to do great. I don't have a Peloton. I'm a huge Soul Cycle addict. So I have to say that, but they have a great recurring revenue model. I think the recurring revenue is around $200 [million] to $220 million a year. That's a great business. What it tells me is, if you're losing money, it's probably not a great time to do an IPO. As great a company as Peloton is, they're still going to lose ... Lyft is losing money, Uber is losing money. The IPO market is really not very kind to companies that aren't making money."
Robert Greifeld, former Nasdaq chairman and CEO, says quality companies will be highly prized in this IPO environment.
"We have to recognize the IPO market generated over $50 billion in capital this year. I remember back in 2003, when I started with NASDAQ, we had zero IPOs and zero dollars raised ... I think what you have to look at is the quality of the offerings. Anytime you have difficulty in the IPO market, we see there's a flight to quality. So clearly, if you have a company that is actually generating profit that is growing, I think that window is wide open."
Bradley Tusk of Tusk Holdings says there's a misunderstanding in the IPO market.
"There's a fundamental misalignment between the private markets and the public markets. And in trying to figure out why this has happened, so much money has been raised by growth equity funds, private equity funds doing venture, VC funds ... but they have to deploy it right and justify the 2% management fee and everything else. And as a result, they put more and more money to work at higher and higher valuations. It meets the needs of the companies doing the rounds. But then once it hits the actual market and it's available to retail investors, they're looking at it and saying, "There's no way WeWork is a $47 billion company; Uber is not a $72 billion company."