The tradition of Yoga may have inspired millions of followers over the thousands of years it’s been practiced, but it’s still not ready for the marketplace of the 21st century. YogaWorks, a chain with over 45 yoga studios across the nation, abruptly announced it would be postponing its IPO on Thursday, July 20th.
While the California-based company cited “market conditions” as the reason for its sudden, last-minute decision to “postpone” the IPO, it’s more likely than not that fears of a low valuation were the real cause of the delay. So what exactly gave the firm cold feet, and what does the future hold for aspiring Yogis hoping to break out and make it on the market?
Growing pains
While practicing yoga has exploded across the United States in recent years, with one study showing a staggering increase of 16 million new participants in a 4 year timespan, few firms have been able to successfully profit off of the boom. YogaWorks has largely been shunned by consumers in recent years, posting consistent losses and seeming unable to woe much-needed investors.
YogaWorks faced a particularly grim loss of net revenue from 2016 thus far into 2017. The company is expecting a mere $12.3-12.6 million in revenue for the second quarter ending on June 30th, a disappointing fall from last years $13.3 million total. Its inability to win over the hearts and business of Yogis could very well spell out its doom, if the ship isn’t soon righted.
The company’s loss of revenue is most likely a result of its declining customer base. YogaWork’s Form S-1, filed with the SEC, notes that the company only expects 700,000-720,000 visits in its second quarter, down from the over 750,000 visits it enjoyed in 2016. If the firm isn’t able to attract more visits by cutting its hefty prices – an individual visit alone cost $20, while monthly-rates near $100 – it may never make it as far as a public offering.
The July 10th regulatory filing with the SEC contains hints of the IPO that might have been. YogaWorks was reportedly hoping to reach $10-12 a share, and even held hopes that a particularly successful pricing could net the company a valuation of nearly $70 million. Without access to the capital its IPO may have brought, even if it dipped below their estimated share prices, the company may struggle to pick itself up and dust off from its recent struggles.
Better luck next time?
It’s very curious that YogaWorks cited “market conditions” for the delay of its IPO, given that the CBOE Volatility Index is near a record low. While the VIX isn’t perfect at gauging investor’s confidence, it is largely reliable, and directly contradicts the company’s issued motive.
As the company has posted net losses for the past two years and shows no sign of becoming profitable in the immediate future, it’s seems a more likely explanation is that YogaWorks fears its valuation would be pitifully low, and pulled out early rather than facing the music.
While the firm was hoping to sell about 5 million shares to raise some $70 million dollars, it may find that its future prospects are just as grim, if not even more so, than the ones it faces now. The firm had a roughly 20% growth rate from 2012 to 2016, branching out from California to go from a mere 24 locations to over 45 including southeast Asia where it has offered staff a Vietnam visa. This growth appears to have done little to actually boost profits.
While investors may yet back the company in hopes that the trend of becoming a yogi continues to grow, it’s likely that the stiff competition facing YogaWorks now is only going to get worse. Professional athletes and amateur first-timers alike are often turning to the internet for free digital lessons, rather than travelling to expensive studios which may charge you extra for small services, like providing a yoga mat.
Nonetheless, after a year of disappointing IPOs, including Blue Apron’s blockbuster debut which was later overshadowed by Amazon’s acquisition of Whole Foods and SNAP’s fall from grace, bold investors may yet bet on YogaWorks if the company decides to break into the market again. More and more millennials are embracing health trends like yoga, and a few bad years doesn’t necessarily spell out the end for the company if it can unleash its spirit and innovate.