SoulCycle, the rapidly growing indoor-cycling lifestyle brand that strives to empower its cycle riders in an immersive fitness experience, filed its original S-1 for an initial public offering on July 30, 2015 and today, a little less than 5 months later, it has filed an updated amended S-1 in preparation to see if the public markets will stay open and have appetite for its unique, highly profitable business model. Watch the IPO performance, given a stumble for any number of external drivers could present an opportunistic buying opportunity.
SoulCycle's original filing revealed its highly-compelling business economics: each cycling studio generates on average $4M in revenue and over $2M in studio EBITDA contribution--a 55% margin unheard of in retail today. Those unit metrics are coupled with a tremendous runway: only 48 studios are open today with 250+ total studio opportunity domestically.
Additionally, SoulCycle is supported by macro industry trends including consumers' growing adoption of niche studio training, consumer preference and efficacy of group-based workouts, and the power of community-driven brand engagement.
The IPO window slowed after SoulCycle's original filing at the end of July, but the Company is now staged again, and, given its owners stand to make outsized profits at essentially any IPO price, likelihood of getting out is higher, with less dependence on stellar market conditions: Related Companies / Equinox acquired a 75% stake in May 2011 from SoulCycles two founders for an estimated $15M - $25M, and subsequently in May 2015 took on $180M in debt to make two $90M payments to each founder for essentially the remainder of their minority stakes. While this debt-funded repurchase suggests an enterprise value of $720M, no additional equity was required by Related Companies / Equinox to acquire this stake, so their all-in equity investment basis to now own +95% of SoulCycle is likely near or below $50M. Essentially whatever the trailing EBITDA multiple this IPO trades at will be roughly the same multiple of return that owners are sitting on, and with high-quality retail concepts trading around 10x to 15x EBITDA (Shake Shack at 25x), this will be a clear home run.
Below are several of the key updates highlighted from SoulCycle's amended S-1 that highlight the continued momentum of the Company:
· Financial updates (Mar-15 Financials vs Sep-15)
· Operations Updates (comparison of Sep-15 to Mar-15)
· Other updates
Given its clear momentum and leadership as a consumer brand and niche studio exercise concept (which is proving more complementary to traditional gym memberships than cannibalistic), SoulCycle represents a compelling investment opportunity. However, a number of external issues could cause the IPO to stumble out of the gate and present a buying opportunity including public market lack of understanding fitness industry trends and limited publicly traded comparable fitness / retail service oriented companies.
Though pricing and trading are yet to be set, one pricing bar to watch is the all-important 15x TTM EBITDA or ~$720M enterprise value, or the level that SoulCycle's founders were bought out at earlier this year. Below this level would suggest an opportunistic buying opportunity for new investors to buy in--a stock to watch as pricing and trading days approach.
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