Analyst Says Peloton Is Downplaying the Risks From Tariffs and Music Lawsuits
Analyst Says Peloton Is Downplaying the Risks From Tariffs and Music Lawsuits
(Bloomberg) -- Global trade drama and clashes over music rights are more than just risk factors for the Peloton Interactive Inc. IPO, according to one analyst who covers the home exercise startup.
Peloton’s IPO prospectus disclosed both risks when it was filed on Tuesday. But it also may have downplayed their significance, D.A. Davidson analyst Michael Kawamoto said in an interview.
“If you’re Peloton, you want to clean that up quickly,” he said of a March lawsuit seeking $150 million in damages on a single claim of copyright infringement for allegedly using their music in fitness classes without permission. “We’ve seen with Spotify and Pandora these things can drag on, so it’s something to keep an eye on in terms of an overhang for the stock.”
Peloton, which charges $39 per month for access to workout programs, had warned that obtaining music licenses “implicates a myriad of complex and evolving legal issues” across many jurisdictions with varying rules. For its part, Spotify is alleged to face similar litigation after claiming it didn’t know who held the copyright to Eminem’s hit song “Lose Yourself” -- part of a lawsuit seeking $120 million in royalties.
Peloton’s prospectus also flags an impact from tariffs imposed on China since last year. The trade war could create more headaches in the future if the tit-for-tat continues, Kawamoto warned.
“The home use exercise equipment space is mainly sourced from China,” he said. “So Peloton will have to deal with that and can ultimately get caught up in the tariffs.”
Tariffs have already affected component costs, Peloton’s filing said.
IPO Valuation ‘Palatable’ for a Tech Firm
The first sell-side analyst to publicly share his perspective on Peloton, Kawamoto said the company’s financials are impressive. He praised the firm’s revenue and subscriber growth, attributing its lack of profitability mainly to the company investing to become much larger.
A rumored IPO valuation of roughly $8 billion is "palatable" if Peloton can convince investors to view it as a technology company, but looks steep for a more traditional exercise equipment or fitness company, the analyst said.
To contact the reporter on this story: Drew Singer in New York at dsinger28@bloomberg.net
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