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3 big reasons to doubt SoulCycle’s IPO

July 31, 2015, 4:53 PM UTC

Investors and cardio addicts alike are getting pumped for high-end spinning studio SoulCycle’s initial public offering, which was announced on Thursday.

However, as with any IPO, SoulCycle’s move will come some risk for investors. According to its filing, here are the top three things that can either make SoulCycle the biggest fitness brand in America, or leave it going the way of David Barton.

1. Coolness

Much of SoulCycle’s value comes from its brand. It's sometimes described as a "cult," thanks to the ferocity of its followers, which include celebrity tastemakers like Taylor Swift, Kanye West, and Chelsea Clinton. But celebrity favoritism is a fickle thing, and being at the mercy of what Taylor Swift thinks can be uncomfortable to say the least (see: Apple Music).

This was duly noted in the SoulCycle's filing:

“We have also benefited in the past from favorable publicity related to celebrities riding in our studios. If in the future we lose such celebrity ridership, this could have a negative effect on our business.”

In other words, one Tumblr post could send SoulCycle’s cult-appeal tumbling — as well as its valuation. “The performance of our studios is dependent on our ability to continuously attract and retain riders,” the filing notes. And while the retention rate of new customers is currently a whopping 85%, these same customers can easily grow tired of paying $34 per class, or simply get bored and move on to the next “in” fitness studio.

2. Uniqueness

Spinning is not a unique concept, but SoulCycle has managed to make it its own, with its lemon-yellow everything, curated playlists, and element of spirituality. While SoulCycle is currently riding at the front of the spinning pack, other studios are catching up quickly. Flywheel, Peloton, Monster Cycle – these are just a few of the other high-end, full-body, music-bumping spin classes already gaining traction in cities like New York and Los Angeles.

Moreover, SoulCycle is famous for its sleek bikes “specifically designed to optimize the SoulCycle workout.” But while the bikes set the studio apart, they’re also made by a single supplier and producer. So what happens if the supply chain goes kaput?

“In the event of interruption from our producer we may not be able to develop alternate or secondary sources without incurring material additional costs and substantial delays,” according to the filing.

3. Big-city attitude

SoulCycle, founded in New York City, seems to have cracked the code for making it in the big city: a total of 23 of its 38 studios are currently located in or around the Big Apple. Its other 15 studios are also located in cities, with 95% of its revenue coming from the New York area, Los Angeles and San Francisco.

However, Ol’ Blue Eyes’ adage that making it here means you can make it anywhere doesn’t necessarily hold. SoulCycle's filing notes:

"We may not find as much demand in other markets and our brand may not gain the same acceptance. A failure to gain acceptance in new markets may have a material adverse effect on our financial condition and results of operations and growth rate.”

In other words, there are places in America where you can bike on a flat road for miles and miles (for free), and people in those places might not like the idea of paying $34 to bike for 45 minutes in one place.