Connected fitness company Peloton released its IPO prospectus Tuesday, revealing grim financials, even by today's startup IPO standards: the company lost nearly $200 million in FY 2019, four times what it lost the previous year. The document also contains plenty of reminders of the company's ongoing legal struggles relating to its music licensing and alleged patent infringement.

Yet, according to Fortune, investors are still considering the company to have a valuation as high as $8 billion. As Peloton's public launch looms, the question on everyone's mind is whether the company is a lucky fad or a solid business model.

Even with the bullish environment for digital health IPOs, there's reason for caution in the connected fitness category specifically: the last big IPO in that category, Fitbit, had a huge, historic opening that quickly dropped off, and the company has struggled with its stock prices more or less ever since.

What's Peloton really selling?

One breakdown in the conversation about whether Peloton is providing real value has to do with what exactly makes their product unique. As an exercise bike maker, it's neither novel nor without competition. And the same can be said for its virtual fitness class offerings. The company's IPO is full of the sort of colorful prose — Peloton is "an innovation company at the nexus of fitness, technology and media" — that sounds exciting but doesn't really answer the question of what sets the company apart.

The company does tout the statistic that four out of five Peloton customers weren't in the market for home fitness equipment when they made their purchase. That stat anchors an argument that the company's real value is bringing a gym-like fitness experience into the home, using its connected technology to bridge the gap in motivation and experience that's historically existed between home exercise equipment and the gym.

"We believe consumers are increasingly spending on experiences and are seeking meaningful community connections," the company writes in its prospectus. "Within the fitness industry, consumers have migrated to boutique fitness due to personalization, expert instruction and the sense of community. Boutique-style fitness offerings are the fastest growing brick-and-mortar fitness category. According to IHRSA, as of 2017, 40% of members of health and fitness clubs reported belonging to a boutique fitness studio, and from 2013 to 2017, membership in boutique studios grew approximately 121%."

In other words, a Peloton bike isn't just an exercise bike — it's an exercise bike plus a spin class. Much like Fitbit, the company is relying on social pressure and network effects to supply motivation, and it's that combination of means and motivation to exercise that's really being sold.

The luxury fitness question

A common critique of the company and it's $2,000+ bike is that it's a luxury item for the very wealthy (Its marketing strategy, lampooned in this brilliant viral Twitter thread from earlier this year, doesn't help that perception). But that argument ignores the company's financing options, which can make the cost to the customer more like $100 a month, not much more than a high-end gym membership. That's what former Greatist CEO Derek Flanzraich argued in a recent Twitter thread.

Flanzraich also notes that Peloton is seeing strong engagement and retention despite its poor financials. This marks an interesting contrast with Fitbit, whose atrocious attrition rate was among its biggest problems. Flanzraich argues the large and expensive hardware turns into an asset here. It's hard to leave a giant bike that you're still paying for in the bottom of your sock drawer.

For its part, Peloton sees its potential audience as families making $50,000 a year or more, a total addressable market of 67 million households (to date, the company has sold 577,000 units, inclusive of bikes and treadmills.)

What's health got to do with it?

Another question particularly germaine to MobiHealthNews readers — and one we routinely field when we write about the company — is whether Peloton really deserves to be considered a digital health company. CNBC's Christina Farr argues that Peloton isn't moving the needle on the country's health, partly because the demographic it targets isn't the one that needs fitness help the most. 

That's an argument that's been leveled before at the last generation of fitness apps and wearables, even though those were by and large more affordable than Peloton. 

In all fairness, one thing Peloton doesn't attempt to do in its prospectus is claim to be solving a public health crisis. Instead, it couches what little talk there is about health benefits in the language of "helping our members meet their goals."

Other fitness companies we've followed at MobiHealthNews, like Fitbit, have ultimately proved worth monitoring for the digital health world as they've gradually moved further on the spectrum from fitness to healthcare. Just this week, Fitbit announced its new premium subscription service that includes "guided health and fitness programs focused on nutrition, sleep, relaxation and physical activity," designed in collaboration with physicians. 

As a product with a built-in media channel, it's not out of the question that Peloton could find itself moving in this direction in the future. For now, though, it remains a fitness brand, focused on helping upper- and middle-class families achieve personal fitness goals.