Exercise-bike startup Peloton filed for IPO and revealed a long list of risk factors that investors should know

The fitness and wellness market has become increasingly saturated. Peloton not only has direct competitors in the indoor cycling industry, such as Flywheel and SoulCycle, but also contends with every gym and boutique fitness concept, and the great outdoors.

• "We face significant competition in every aspect of our business, including at-home fitness equipment and content, fitness clubs, in-studio fitness classes, and health and wellness apps."
• "We expect the competition in our market to intensify in the future."
• "If our market... becomes saturated with competitors, or if our products and services do not achieve market acceptance, our business, financial condition, and operating results could be adversely affected."

And if it doesn't keep up with trends or if competitors introduce similar offerings faster, it's likely to lose out.

The connected home fitness market is still new and "largely unproven," the filing said, and it's unclear as to whether it will sustain high levels of demand or become the workout of choice for many people:

• "If it does not continue to grow, grows more slowly than we expect, or fails to grow as large as we expect, our business, financial condition, and operating results may be adversely affected."

Moreover, educating consumers on these new products and services requires "significant" investment, it said.

Peloton's numbers show that business has historically boomed at the back end of the year when the cold weather kicks in in the northern hemisphere and customers are making New Year's resolutions to get fit.

It brings in a "disproportionate" amount of sales between November and February, the filing said. In fiscal 2017, 2018, and 2019, for example, it generated over 60% of its full-year revenue during the second and third quarters.

But this brings its own risks. If adverse events occur during these months, for example, it could have a disproportionate effect on its operating results for the entire year, the filing said.

Peloton is expecting the excitement around and rapid sales growth of its core product, the $2,000 connected fitness bike, to cool as the company matures.

"We have experienced periods of high revenue growth since we began selling our Bike that we do not expect to continue as our business matures," the filing said.

And because the company derives a "significant majority" of its revenue from sales of its bike, any material decline in sales would have a "pronounced impact on our future revenue and operating results," it said.

Peloton relies on a small group of manufacturers whose primary facilities are located in Taiwan to produce its machines.

Its reliance on these manufacturers puts it at risk especially as it doesn't currently have backup suppliers in place. Finding new suppliers is complex and there's no guarantee that it would be able to do so without incurring extra costs and delays, it said.

The company is already being impacted by the US' trade war with China where it sources parts for its machines. Depending on the outcome of current trade negotiations, these could have a greater impact, it said, and ultimately affect its margins.

Music is an important part of Peloton's workout classes but thanks to the complexities of licensing, there's no guarantee that it will be able to play exactly what it wants.

"We cannot compel third parties to license their music to us," it said in the filing. "And our business may be adversely affected if our access to music is limited."

It continued: "Given the high level of content concentration in the music industry, the market power of a few licensors, and the lack of transparent ownership information for compositions, we may be unable to license a large amount of music or the music of certain popular artists, and our business, financial condition, and operating results could be materially harmed."

Peloton also said that due to the complexity of licensing agreements, it couldn't be sure it wasn't "infringing or violating any third-party intellectual property rights" with the music already on its service.

Read more: Peloton warns that its inability to license premium music for its at-home workout classes could be one of the major downfalls to its business model

Most of Peloton's management team has limited experience running a public company, according to the S-1.

And the new responsibility of answering to shareholders and complying with the increasingly complex laws that a public company has to follow could "divert" the attention of senior leadership from the day-to-day running of the business and negatively impact it, it said.

The entire company culture could also be at risk as the company grows and develops its infrastructure to support it going public:

• "We believe that a critical component of our success has been our corporate culture. We have invested substantial time and resources in building our "One Peloton" culture, which is based on the idea that if we work together, we will be more efficient and perform better because of one another."
• "Any failure to preserve our culture could negatively affect our future success, including our ability to retain and recruit personnel and to effectively focus on and pursue our corporate objectives."