With $100 Million cash on hand and positive cash flow according to their most recent investor call, why is mindbody selling another $120 Million in shares? I believe it's either because Mindbody believes their stock is going to fall, (and I don't believe they believe that), they simply want another $100 million sitting in the bank, or they are getting ready for a monster acquisition.
It's important to note that I have absolutely no information regarding my hypothesis, but I'm reading the tealeaves we always read and it appears to me that mindbody is preparing to acquire classpass.
On multiple previous investor calls, including the most recent linked above, mindbody has talked about how the revenue they earn from API calls has fallen due to one of their "key partners" changing their business model, resulting in lower registrations counts. I believe they're talking about classpass who's CEO stepped down in March and who was replaced by Fritz Lanman, a classpass investor. Make no mistake, the primary aim of this new CEO is to ensure the $84 Million raised over 5 rounds isn't lost.
Mindbody is also experiencing significant churn numbers right now, losing more than 5,000 customers last quarter while at the same time their revenue is increasing. They talk now of their "high value customers" that generate significant revenue on the consumer side of things via payments, deals engine offers, etc and they openly talk about the importance of consumer revenue.
As we've written about extensively on this blog, mindbody is in the process of pivoting away from being a software company serving small businesses to becoming a consumer marketplace, where they're the uber of fitness and studios are a commodity providing "inventory".
A classpass acquisition would fit perfectly into this strategy. Perfect for mindbody of course, not for your studio. Again, we're making predictions here, and not all numbers line up perfectly. Fortune reported that classpass was "close" to raising $35 Million back on May 5th at a reported valuation of around $400 Million.
Did this funding fall through? Did Fritz call Rick to make a deal? We don't know, but I think we're about to find out.
My prediction: Mindbody is about to acquire classpass for $100 Million cash, plus stock. This would pay back all 29 Classpass investors, give them some stock in mindody, and allow them to pat each other on the backs for operating a business with gross negative margins, and claim a successful exit.
As for your studio, if you're not already on Tula, you might want to consider making a switch unless you're looking forward to becoming an uber driver for Mindbody.