Peloton Losing Star Instructors May Pose Biggest Risk, MKM Says

(Bloomberg) -- As public markets prepare to value Peloton Interactive Inc. this week, MKM analyst Rohit Kulkarni said the biggest question on investors’ minds is talent.

Peloton, which makes connected exercise bikes, is expected to begin trading on Thursday, and its offering and $26-$29 per share pricing range implies a valuation of $7.4 to $8.3 billion, according to MKM. The company’s “star instructors” are a key aspect of its business and any potential departures would be “akin to say, Justin Bieber, Beyonce or Lady Gaga pulling their latest album from Spotify.”

“Instructors are a critical part of Peloton’s success, and we think live classes led by popular instructors are one of the keys to Peloton’s long-term sustainable competitive advantage,” Kulkarni wrote in a note to clients Tuesday.

Read more: Peloton Has ‘Rare Air’ Revenue Growth Ahead of IPO, MKM Says

With 29 instructors as of June 30, and three production studios in New York City and London, Peloton doesn’t face imminent concentration risks yet, but investors should watch popular names such as Jessica King or Alex Touissant after another instructor’s departure created a “mini-Reddit storm,” Kulkarni said.

Regarding the potential valuation, MKM estimates a sum-of-the-parts approach would see its hardware segment valued between $4.5 billion and $5 billion while its subscription service would fetch $4.2 billion to $4.7 billion.

MKM doesn’t have an investment view on the stock and isn’t participating in the IPO.

To contact the reporter on this story: Tatiana Darie in New York at tdarie1@bloomberg.net

To contact the editor responsible for this story: Catherine Larkin at clarkin4@bloomberg.net

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