Last week MINDBODY (MB) (all caps, no CamelCase) went public on the NASDAQ. MINDBODY describes itself as the “leading online global wellness marketplace”.  Here’s how MINDBODY depicts its business:

MINDBODY sells to 42,000 gyms, yoga studies, salons, spas, and other “wellness”  destinations software for managing their businesses–from appointment booking to staff scheduling to point of sale and mobile apps.  They also provide an integrated payments processing capability.  ( I love that part.)  This is the applications part of the business.  MINDBODY wants to be, and says it is, a marketplace because:

• it also provides an application for consumers to search and book across wellness providers (MINDBODYconnect) and
• it is also selling to company HR groups a wellness benefits program they are hoping will be provided to employees.

MINDBODY Good News

There is a lot to like about MINDBODY:

• Growth of the underlying “wellness” market and the trend to “boutique” workout places
• High growth rates of subscribers, consumers, payments (see below)
• An integrated payments processing business (on which they gross about 70 bps)
• A critical application for their customers
• From what I hear, a good reputation among yoga studios and their target market generally.  (My brother, Jim, has run a bunch of gym chains over the course of his career.)

MINDBODY Bad News

There is also plenty to question about MINDBODY:

• I’m convinced there is an application here, but I’m less convinced of the industry marketplace.  Is there really a “wellness market” in consumer’s eyes or just MINDBODY’s?  I’m not sure I equate my personal trainer with my barber with my doctor and think of one app for all of them?

My brother feels I misunderstand the opportunity. Apparently, the new thing in fitness is to book classes at a bunch of different places, rather than pay a monthly membership at one place.  If this is the case, perhaps there is a marketplace.  (There is already a hot company called ClassPass that buys unused capacity at boutique studios at a discount, aggregates this capacity, and remarkets it to consumers in the form of an unlimited monthly subscription.  No reason MINDBODY could not do this too.)

It all sounds very young, SF, LA, and NYC to me!

• OpenTable is an interesting analogy for this company.  OpenTable started with an electronic reservation systems for restaurants and then did turn into a marketplace.  But dining is a much bigger market and consumers tend to give up “wellness” before they give up eating out.  (I offer America’s obesity epidemic as Exhibit A.)
• I’m also not convinced of the employee wellness angle.  It sounds great, but most companies have a bigger fish to fry relative to the health of their employees than this softer stuff.  And HR departments are also hearing about lots of other applications to improve financial well being.  The employer market also represents an enterprise sale in a company driven by SMB sales. (It is an entirely different animal.)
• MINDBODY is growing like OpenTable was when it went public and is even bigger, but OpenTable actually made money when it went public and MINDBODY lost almost $8 millon on revenue of $22 million in the latest quarter.
• MINDBODY mentions changing its pricing recently which is unusual for a company that has been around this long.
• Perhaps most important, MINDBODY skimps (or is squirrely) in its S-1 on underlying SaaS metrics.  We get:
  • Data on one cohort from 2011 (not so great by the way)
  • We get an active customer number that includes the last two years
  • We do get a “Dollar-based net expansion rate” which shows a negative net churn on an annual basis of 103% to 109%, which is good, but probably not great.  (Where is Tomasz Tunguz) when you need him?

MINDBODY Valuation

MINDBODY sports a market cap of about 8x revenue or about $550 million.  (It is selling almost exactly for its IPO price.  The stock price fell rapidly early in the week and recovered.)

OpenTable had a market cap of $700 million when it went public, which was about 15x-20x revenue.   Clearly the market liked that OpenTable was already profitable.  At that point (May 2009) OpenTable probably could not have gone public if it had not been profitable. (Anyone remember those days?)  As you may recall, OpenTable was then a roller coaster, exploding in value, dropping back down to $900 million in market cap and finally selling for $2.6 billion (to Priceline).

Based just on this simplistic measure of value, MINDBODY does sell at a discount.  However, my list of reservations (pun intended) about this stock is still too long to get excited, especially this early on.

Summary

MINDBODY like OpenTable before it, is a fascinating example of building one side of a marketplace first (to a large extent) and then trying to add the other side.  In both cases, the strategy is to sell an application that stands on its own merits (electronic reservation book for OpenTable, MINDBODY software and payments platform) and then bring in the other sides later–consumers, employers, etc. Some have called this the “come for the application, stay for the network” approach to solving the “chicken and the egg dilemma” faced by all marketplaces.