U.S. Markets close in 1 hr 15 mins

Why Peloton isn't a fad

Brian Sozzi

Perhaps the hardcore Peloton skeptics on Wall Street — and there are many — should give the hardware and software a try before deeming it a fad exercise trend.

That is if they can put the Big Macs and soda down for a second to think clearly.

Peloton Interactive will debut at the Nasdaq on Thursday after raising several rounds of capital dating back to its founding in 2014. The company’s stock priced at the high-end of $26 to $29 range Wednesday evening. It’s expected to raise more than $1.16 billion in the offering, valuing the company at about $8 billion initially.

Wall Street is likely surprised by the upbeat pricing on Peloton (PTON). Questions continues to swirl on whether the company could ever turn profitable in such a competitive fitness equipment market. Moreover, many also continue to be unsure how to value Peloton — a low margin hardware company or higher margin software entity.

But make no mistake, ask people who use Peloton and have covered the company for a while and it’s clear they don’t think it’s a passing fad.

“I don’t think Peloton is a fad,” said Women’s Health Magazine Editor-in-chief Liz Plosser in an interview on Yahoo Finance’s The First Trade. Plosser has covered the fitness space her entire career and is quite familiar with the Peloton story. In her view, Peloton has served up magic to people by bringing studio quality workout classes into the home.

And the community experience is impressive, other experts tell Yahoo Finance.

That said, Peloton does have some proving to do to its new crop of investors and Wall Street more broadly.

LAS VEGAS, NV - JANUARY 11: Maggie Lu is reflected in a touch screen as she demonstrates how to select a class on a Peloton Tread treadmill during CES 2018 at the Las Vegas Convention Center on January 11, 2018 in Las Vegas, Nevada. The USD 3,995 workout machine is expected to be available later this year and features a 32-inch touch screen that connects users to instructors giving live or on-demand fitness classes. CES, the world's largest annual consumer technology trade show, runs through January 12 and features about 3,900 exhibitors showing off their latest products and services to more than 170,000 attendees. (Photo by Ethan Miller/Getty Images)

Peloton hauled in $915.9 million in sales for the fiscal year ended June 30. But it lost a whopping $202 million as it ramped up marketing costs to attract new users beyond simple word of mouth and product development.

The company is also building out showrooms (a new 35,000-square-foot facility, in New York City’s West Side, dedicated to content creation will open in 2020) for its products around the world, entering new markets and expanding its live programming.

All of that costs money. Just don’t call it money spent on promoting a fad.

Brian Sozzi is an editor-at-large and co-anchor of The First Trade at Yahoo Finance. Follow him on Twitter @BrianSozzi

Read the latest financial and business news from Yahoo Finance