Is SoulCycle the new Shake Shack?
SoulCycle, the boutique indoor cycling exercise chain that boasts Lady Gaga and Tom Cruise among its clients, is going public.
In its filing for an initial public offering, the company says its revenue grew from $75.3 million in 2013 to $112 million last year, and income jumped 42% to $26.5 million in the same time period.
SoulCycle began in 2006 when co-founders Elizabeth Cutler and Julie Rice opened a single studio in New York. It now has 41 locations nationwide, and it plans to open 50 to 60 more next year.
Yahoo Finance Senior Columnist Michael Santoli sees some real parallels between SoulCycle and another trendy New York-based firm that went public recently.
“This is the Shake Shack (SHAK),” he argues. “This is a metropolitan craze, people will go on line and wait.”
Yahoo Finance’s Aaron Task notices that as well.
“Shake Shack is a good analogy,” he says. “It is a lifestyle thing and people who do it are really dedicated to it.”
However, Santoli warns SoulCycle better be looking over its shoulder.
“In their core markets, there are already other hip studios that have come around and leapfrogged the status value of SoulCycle,” he says.
Task has his doubts as well.
“I wonder how big the market is for people to spend that kind of money to work out,” he notes.
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Santoli points out that at least for now, SoulCycle is doing great. But that’s a double-edged sword.
“It’s very profitable,” he explains. “25% profit margins, it’s been profitable for three years in a row. That’s great, but it also says it probably leaves room for other people to come in and feast on the same business.”
So why would a relatively small operation such as SoulCycle want to be a publicly-traded company? Santoli thinks it's the same mentality of so many similar firms that the demand is there for them to strike Wall Street gold.
“These companies have found and believe that there is a huge total market for people to at least want to pretend they’re interested in fitness,” he explains. “And SoulCycle is all about demand outstripping supply-- people are rushing to get on one of those bikes.”
Task finds that fact could be problematic.
“The thing that SoulCycle has now is the exclusivity, it’s really hard to get a seat in a SoulCycle class,” he adds. “The question is once they go public and expand, do they lose that exclusivity?”
And Task says just like Shake Shack, the key for SoulCycle is to be able to expand without losing touch with what got them here.
“There is a cult-like atmosphere for people at SoulCycle, and as you get bigger do you lose some of the things that make it special,” he asks. “That’s going to be the challenge.”
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