"SoulCycle - Startup Valuation: IPO" Assignment Questions

Instructions:

Your group should upload one electronic copy of your Excel solution on
Canvas. Assignments submitted late will not be accepted. You should submit a solution
to all “Assignment Questions”. Your solution should be formatted and set out so that it is
easy to read, clearly show your working, the logic behind your answers, and any
assumptions you made in the analysis.

Assignment Questions

1. Project SoulCycle’sfree cash flows.

You should forecast that SoulCycle will follow a two stage growth process. For the next six years it will continue to grow rapidly by adding new studios. After that growth will slow and it will primarily concentrate on operating the studios opened during its expansion period. To forecast the free cash flows this will generate use the following instructions:
Projecting Revenue in Each Year. Revenue growth from Studio Fees at SoulCycle is primarily driven by growth in the number of studios. Accordingly you should forecast revenues from studio fees using the following formula.
Revenue from Studio Fees = (Number of Studios)×(Number of Rides Per Studio)×(Studio Fee Per Ride)
This requires forecasting each of the three components of studio fee revenue. Use the following information to do this:
• Number of studios: You should project the expected number of studios in 2015 and each year after. Based on all of the information in the case make an assumption about the growth rate in the number of studios over the next six years(i.e.starting from its historical value at the end of 2014 and projecting up to and including 2020). Assume a single constant rate and provide 3-5 sentences justifying your assumption based on your
analysis of the information that is presented in the case. Make sure that the assumption you make is shown clearly in your assignment. One way to anchor your forecast is to think about how many studios you expect SoulCycle will have at the end of its growth phase (i.e.by the end of 2020). The data provided in Exhibits 2D, 5, 6, 9A and 9B are all good places to look for information to help form and justify your forecast. Assume that SoulCycle will reach near market saturation by the end of 2020. As a result the number of studios will grow at a constant rate of 0.5% from 2020 to 2021 and each year after that. Note that the number of studios is changing over the course of the year. For all calculations use the total number of studios at the end of the year to represent the total number of studios in that year (do not bother inferring the average number of studios over the course of year).
• Number of Rides Per Studio: Assume that the number of rides per studio will remain constant at the ratio obtained in 2014 (see Exhibit 2c) for each year into the future.
• Studio Fees Per Ride: To project this, start with the average studio fee per ride in 2014. Do not worry if the expected number of studios you project is not a round number. Since these are expected values there is no reason why they need to be round numbers.

(Exhibit 2c). In words, this is the average price that a customer pays for one class. Next, make an assumption about how this will grow over the next six years (i.e. through to 2020). Assume a constant growth rate (it can be negative if you think that the average price of rides will fall) and provide 3-5 sentences justifying your assumption based on your analysis of the information that is presented in the case. Think about how the expansion of SoulCycle studios is likely to impact the average price it can charge per ride across all its studios. Make sure that the assumption you make is shown clearly in your assignment. Assume that studio fees per ride will grow at a constant rate of 1.75% from 2020 to 2021 and each year after that (i.e. to keep up with inflation).