aswathdamodaran.blogspot.com · 2019-09-17 · 2452d

Musings on Markets: VC Pricing Lessons from Uber, WeWork, and Peloton IPOs

The author analyzes commonalities in 2019 IPO prospectuses (Uber, WeWork, Peloton, Lyft, Slack, Pinterest) and argues that venture capitalists price companies based on inflated TAMs, revenue scaling metrics, blurry business models, and founder entrenchment rather than sound valuations. He reverse-engineers the VC game to show how these practices cascade through funding rounds and concludes with a DCF valuation of Peloton at $19.35 per share, well below the $26–$29 IPO offering price.

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Metrics in this report

Largest US Fitness Company Revenue

2billions USD

minimum

Typical range for large US gym and equipment manufacturers

Largest US Fitness Company Revenue

3billions USD

maximum

Typical range for large US gym and equipment manufacturers

Peloton Bike Price

2250USD

Upscale exercise bike retail price, circa 2019

Peloton Bike Subscription

40USD/month

Monthly subscription fee for Peloton product owners

Peloton Digital Subscription

20USD/month

Monthly subscription fee for non-Peloton fitness product owners, 100k members in 2018

Peloton IPO Offering Price Range

26USD

minimum

Low end of public offering range announced in prospectus

Peloton IPO Offering Price Range

29USD

maximum

High end of public offering range announced in prospectus

Peloton Median Valuation (Simulation)

18.30USD

median

Monte Carlo simulation across cost of capital and margin assumptions

Peloton Options Outstanding

64.6millions

Outstanding options not included in primary share count, average strike price $6.71

Peloton Share Count (Common)

277.76millions

Shares outstanding as stated in company prospectus, excluding options

Peloton Treadmill Price

4000USD

Premium treadmill retail price, circa 2019

Peloton Valuation (10th Percentile)

0USD

Downside scenario in Monte Carlo simulation

Peloton Valuation (90th Percentile)

38.42USD

Upside scenario in Monte Carlo simulation

Peloton Valuation (Base Case DCF)

6.65billions USD

Author's discounted cash flow equity value before option dilution

Peloton Value Per Share (Diluted)

19.35USD

Including dilution from 64.6M outstanding options at $6.71 average strike price

Recent VC Funding (Peloton)

4.2billions USD

Pre-IPO valuation used to anchor IPO expectations

Recent VC Funding (Uber)

66billions USD

Pre-IPO valuation used to anchor IPO pricing

Recent VC Funding (WeWork)

47billions USD

SoftBank investment used to anchor IPO expectations

Total Addressable Market (TAM)

5.71trillions USD

Uber prospectus claim, spanning all passenger vehicle and public transport spending across 175 countries

Total Addressable Market (TAM)

3trillions USD

WeWork prospectus claim for office space opportunities

Total Addressable Market (TAM)

45millions

Peloton prospectus claim for addressable market in the US

Total Fitness Market (Equipment & Services)

30billions USD

null

United States, 2019 estimate

Total Fitness Market (Equipment & Services)

90billions USD

Global market, 2019 estimate