SoulCycle: all that glitters is not gold

Pssst. Wanna make it big? Buy this hot stock.

This post diverges a bit from my usual subjects, but some of today’s breathless talk about can’t lose IPOs (initial public offerings) reminds me of the late 1990s when colleagues at work talked constantly about the run-up in tech stocks like Inktomi, Infospqce and pets.com, and how they were going to make a killing.

StockMarketBubble-Invest10MinutesAgo-BSmallerAug1998-450px

During the dot-com bubble of the late 1990s, too many investors abandoned common sense and ignored standard metrics, as upstart companies rose like a rocket and then flamed out.

Inktomi, which provided software for internet service providers, soared to a market capitalization of $25 billion and a stock price of $241 a share in March 2000. Over the next 18 months the stock declined by 99.9% and in March 2003 Yahoo acquired the company for $250 million, or $1.63 a share.

Today all the talk’s about can’t lose companies like SoulCycle, a souped-up indoor cycling studio.

Remember Bally Total Fitness? Once owned by slot-machine maker Bally Manufacturing, it was the world’s largest owner and operator of fitness centers in 1987. In May 1998, it listed on the New York Stock Exchange under the ticker symbol BFT. After two bankruptcy filings, it now operates just 3 sites in New York.

Now we have SoulCycle.

A SoulCycle class

A SoulCycle class

In a July 30, 2015 Prospectus for its planned IPO, the company says it’s “a rapidly growing lifestyle brand that strives to empower our riders in an immersive fitness experience” and a company that believes “fitness should be joyful, inspiring and help people connect with their true and best selves.”

Wow! Who could resist investing their hard-earned money in that?

SoulCycle began as a small cycling studio in New York City in 2006. Since then SoulCycle has opened 47 locations nationwide, with plans to open 50-60 studios worldwide by 2016. It says it believes there’s enough opportunity to grow its domestic footprint to at least 250 studios.

The wealthy investors behind SoulCycle hope to reap a windfall when the company goes public, and there’s a lot of positive talk on the street.

But investors who are salivating over the IPO may be getting too exuberant.

As SoulCycle’s Prospectus notes, risk factors include the company’s ability to maintain the reputation and value of its brand, to attract and retain riders and to gain acceptance outside its Eastern geographic base.

There’s also competition. Current competitors already include similar cycling studios, like BurnCycle, Flywheel, and Portland’s Revocycle, as well as other fitness boutiques and thousands of athletic clubs that offer spinning classes. Revocycle, for example, is positioning itself as “the higher ground” of exercise, part of an “Organic, Artisanal Indoor Cycling Revolution.”

“Soul Cycle created a super high-intensity atmosphere ‘dance party on a bike’ class taught by ‘rockstar’ model/actor instructors,” says Revocycle. “…we try to treat our cycle classes like a yoga class, or barre….we practice excellent form and technique for safety, speak with a calming voice, use respectful and positive language, and we really tune into our bodies.”

SoulCycle is also going to have to deal in a timely way with inevitable changing trends. It could, frankly, be just another fitness fad.

In addition, there’s the issue of changing economic circumstances.

At $34 a session, if you go three mornings a week, you’ll spend $5304 a year. If you want to go whole hog, you can reserve your favorite instructors or classes by signing up for 50 SuperSoul classes at $3500, or $70 a session.

If you’re part of the 1 percent, that’s no big deal. But that may be too much for enough customers to fill 250 studios across the United States.

The experience of other recent IPOs should send a warning, too.

Of the 35 companies that went public with a valuation larger than $1 billion and started trading in the past year, 40 percent of them have fallen below their IPO price, BloombergBusiness reported earlier this month.

Bloomberg noted that investors had initially been excited about getting a piece of companies like Etsy Inc., which surged 87.5 percent on its first day of trading, and LendingClub Corp., which climbed 56.2 percent, but both stocks have slid more than 11 percent below their offering prices.

The Motley Fool just highlighted that even much-vaunted Twitter (NYSE:TWTR) stock has been hammered recently. After rising to $53 earlier this year, shares have since been halved. Now trading at around $24, Twitter stock’s year-to-date return is a disappointing -32%.

So as Sergeant Phil Esterhaus used to say on Hill Street Blues, “Hey, let’s be careful out there.”

Pssst. Wanna make it big? Buy this hot stock.

This post is a little different than my usual, but some of today’s breathless talk about can’t lose IPOs (initial public offerings) reminds me of the late 1990s when colleagues at work talked constantly about the run-up in tech stocks like Inktomi, Infospqce and pets.com, and how they were making a killing.

During the dot-com bubble of the late 1990s, too many investors abandoned common sense and ignored standard metrics, as upstart companies rose like a rocket and then flamed out.

Inktomi, which provided software for Internet service providers, soared to a market capitalization of $25 billion in March 2000 and a stock price of $241 a share. Over the next 18 months the stock declined by 99.9% and in March 2003 Yahoo acquired the company for $250 million, or $1.63 a share.

Today all the talk’s about can’t lose companies like SoulCycle, a souped-up indoor cycling studio.

Remember Bally Total Fitness? Once owned by slot-machine maker Bally Manufacturing, it was the world’s largest owner and operator of fitness centers in 1987. In May 1998, it was listed on the New York Stock Exchange under the ticker symbol of BFT. After two bankruptcy filings, it now operates just 3 sites in New York.

Now we have SoulCycle.

In a July 30, 2015 Prospectus for its planned IPO, the company says it’s “a rapidly growing lifestyle brand that strives to empower our riders in an immersive fitness experience” and a company that believes “fitness should be joyful, inspiring and help people connect with their true and best selves.”

Wow! Who could resist investing their hard-earned money in that?

SoulCycle began as a small cycling studio in New York City in 2006. Since then SoulCycle has opened 47 locations nationwide, with plans to open 50-60 studios worldwide by 2016. It says it believes there’s enough opportunity to grow its domestic footprint to at least 250 studios.

The wealthy investors behind SoulCycle hope to reap a windfall when the company goes public, and there’s a lot of positive talk on the street.

But investors who are salivating over the IPO may be getting too exuberant.

As SoulCycle’s Prospectus notes, risk factors include the company’s ability to maintain the reputation and value of its brand, to attract and retain riders and to gain acceptance outside its Eastern geographic base.

There’s also competition. Current competitors already include similar cycling studios, like BurnCycle, Flywheel, and Portland’s Revocycle as well as other fitness boutiques and thousands of athletic clubs that offer spinning classes. Revocycle, for example, is positioning itself as “the higher ground” of exercise, “the Portland Organic, Artisanal Indoor Cycling Revolution.”

“Soul Cycle created a super high-intensity atmosphere ‘dance party on a bike’ class taught by ‘rockstar’ model/actor instructors,” says Revocycle. “…we try to treat our cycle classes like a yoga class, or barre….we practice excellent form and technique for safety, speak with a calming voice, use respectful and positive language, and we really tune into our bodies.”

SoulCycle is also going to have to deal in a timely way with inevitable changing trends. It could, frankly, be just another fitness fad.

SoulCycle will also have to deal with people’s changing economic circumstances.

At $34 a session, if you go three mornings a week, you’ll spend $5304 a year. If you want to go hole hog, you can reserve your favorite instructors or classes by signing up for 50 SuperSoul classes at $3500, or $70 a session.

If you’re part of the 1 percent, that’s no big deal. But that may be too much for enough customers to fill 250 studios across the United States.

The experience of other IPOs also should send a warning, too.

Of the 35 companies that went public with a valuation larger than $1 billion and started trading in the past year, 40 percent of them have fallen below their IPO price, BloombergBusiness reported earlier this month.

Bloomberg noted that investors had initially been excited about getting a piece of companies like Etsy Inc., which surged 87.5 percent on its first day of trading, and LendingClub Corp., which climbed 56.2 percent, but both stocks have slid more than 11 percent below their offering prices.

The Motley Fool just highlighted that even much-vaunted Twitter (NYSE:TWTR) stock has been hammered this year. After rising to $53 earlier this year, shares have since been halved. Now trading at around $24, Twitter stock’s year-to-date return is a disappointing -32%.

So as Sergeant Phil Esterhaus used to say on Hill Street Blues, “Hey, let’s be careful out there.”

SoulCycle: all that glitters is not gold

Pssst. Wanna make it big? Buy this hot stock.

Some of today’s breathless talk about can’t lose IPOs (initial public offerings) reminds me of the late 1990s when colleagues at work talked constantly about the run-up in tech stocks like Inktomi, Infospqce and pets.com, and how they were making a killing.

During the dot-com bubble of the late 1990s, too many investors abandoned common sense and ignored standard metrics, as upstart companies rose like a rocket and then flamed out.

Inktomi, which provided software for Internet service providers, soared to a market capitalization of $25 billion in March 2000 and a stock price of $241 a share. Over the next 18 months the stock declined by 99.9% and in March 2003 Yahoo acquired the company for $250 million, or $1.63 a share.

Today all the talk’s about can’t lose companies like SoulCycle, a souped-up indoor cycling studio.

Remember Bally Total Fitness? Once owned by slot-machine maker Bally Manufacturing, it was the world’s largest owner and operator of fitness centers in 1987. In May 1998, it was listed on the New York Stock Exchange under the ticker symbol of BFT. After two bankruptcy filings, it now operates just 3 sites in New York.

Now we have SoulCycle.

In a July 30, 2015 Prospectus for its planned IPO, the company says it’s “a rapidly growing lifestyle brand that strives to empower our riders in an immersive fitness experience” and a company that believes “fitness should be joyful, inspiring and help people connect with their true and best selves.”

Wow! Who could resist investing their hard-earned money in that?

SoulCycle began as a small cycling studio in New York City in 2006. Since then SoulCycle has opened 47 locations nationwide, with plans to open 50-60 studios worldwide by 2016. It says it believes there’s enough opportunity to grow its domestic footprint to at least 250 studios.

The wealthy investors behind SoulCycle hope to reap a windfall when the company goes public, and there’s a lot of positive talk on the street.

But investors who are salivating over the IPO may be getting too exuberant.

As SoulCycle’s Prospectus notes, risk factors include the company’s ability to maintain the reputation and value of its brand, to attract and retain riders and to gain acceptance outside its Eastern geographic base.

There’s also competition. Current competitors already include similar cycling studios, like BurnCycle, Flywheel, and Portland’s Revocycle as well as other fitness boutiques and thousands of athletic clubs that offer spinning classes. Revocycle, for example, is positioning itself as “the higher ground” of exercise, “the Portland Organic, Artisanal Indoor Cycling Revolution.”

“Soul Cycle created a super high-intensity atmosphere ‘dance party on a bike’ class taught by ‘rockstar’ model/actor instructors,” says Revocycle. “…we try to treat our cycle classes like a yoga class, or barre….we practice excellent form and technique for safety, speak with a calming voice, use respectful and positive language, and we really tune into our bodies.”

SoulCycle is also going to have to deal in a timely way with inevitable changing trends. It could, frankly, be just another fitness fad.

SoulCycle will also have to deal with people’s changing economic circumstances.

At $34 a session, if you go three mornings a week, you’ll spend $5304 a year. If you want to go hole hog, you can reserve your favorite instructors or classes by signing up for 50 SuperSoul classes at $3500, or $70 a session.

If you’re part of the 1 percent, that’s no big deal. But that may be too much for enough customers to fill 250 studios across the United States.

The experience of other IPOs also should send a warning, too.

Of the 35 companies that went public with a valuation larger than $1 billion and started trading in the past year, 40 percent of them have fallen below their IPO price, BloombergBusiness reported earlier this month.

Bloomberg noted that investors had initially been excited about getting a piece of companies like Etsy Inc., which surged 87.5 percent on its first day of trading, and LendingClub Corp., which climbed 56.2 percent, but both stocks have slid more than 11 percent below their offering prices.

The Motley Fool just highlighted that even much-vaunted Twitter (NYSE:TWTR) stock has been hammered this year. After rising to $53 earlier this year, shares have since been halved. Now trading at around $24, Twitter stock’s year-to-date return is a disappointing -32%.

So as Sergeant Phil Esterhaus used to say on Hill Street Blues, “Hey, let’s be careful out there.”

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