Soho House IPO Stock: Is the Price of Entry Worth the Investment?

The parent company of Soho House, Membership Collective Group (MCG), is taking the collection of private members' clubs public. With the IPO stock nearing its public debut, investors might want to take a hard look at Soho House.

Given the company's financial condition, is the hefty price of entry worth an investment into the Soho House IPO?

Soho House parent company MCG has been talking about going public for months, but the business just filed its registration statement with the SEC on June 21. Weeks later, we have an idea of how much the company expects to raise in the offering and how much it plans to use the funds for growth and expansion.

The suspense leading up to the Soho House IPO is similar to the business's innate structure, which relies on a semblance of exclusivity to keep prices high and members invested. There are currently 28 Soho House locations worldwide plus a collection of related businesses like Scorpios Beach Club and Soho Works, the latter of which is a co-working space that costs as much as $800 per month.

MCG and the Soho House businesses plan to raise enough for a $3 billion corporate valuation by offering 30 million shares at about $15 apiece. The company is first offering the opportunity to purchase IPO-price shares to existing members. This includes people with a stake in the company's private equity as well as members of the exclusive clubs.

Soho House founder Nick Jones wrote to members and said, "This move will enable us to accelerate our investment in improving both the physical and digital elements of your membership." For Soho House, the IPO is a fundraising opportunity on a major scale, but it comes with a lot of baggage. The company will be held to a standard of developing profit and a stronger bottom line.

When evaluating the MCG IPO valuation, the question of Soho House's profitability comes into play. For a highly profitable company, a $3 billion valuation might make sense. However, that isn't the case for Soho House.

Since it was founded in 1995, Soho House hasn't achieved an operating profit. The company's EBITDA (earnings before interest, taxes, depreciation, and amortization) hit just three percent in 2019. At the same time, the company sat under mountainous debt to the tune of $750 million.

The lack of profitability for Soho House and the MCG empire is a lot to bet on. Jones has proven his ability to home in on the elitist market over the course of the last 26 years, but it's an entirely different thing to sway the stock market. U.S. investors are savvy, and it's going to take a lot more than a pinky promise of fame to get people to purchase the stock.

Some IPOs are more volatile than others, and analysts foresee Soho House landing in the higher percentile. With DiDi Global (NYSE:DIDI) stock falling about 20 percent from its market debut, Soho House might represent a higher risk tolerance that retail investors aren't willing to carry.