The pricing asked by VirZOOM of its investors and prospective investors is a steep one. Its valuation cap has been set by management at $20 million with a 15% discount. This is a rather high valuation cap given the stage the company is presently in. As a result, our system rated the company low when it comes to the price being offered to investors.

VirZOOM’s market is significant in size but highly competitive. The current industry leader for tech-enabled exercise — Peloton — believes that the total addressable market consists of about 75 million individuals. It also involves 36,500 health clubs and boutique fitness operators. The individual count drops to 20 million for their connected fitness and digital household features when you add pricing to the mix. This makes sense for Peloton because of the high cost of their bike. One advantage VirZOOM has is that it no longer sells hardware. So, in a sense, its product could be viewed not only as a direct competitor to the content provided by Peloton, but also as complementary to Peloton’s cycles. 

Taking Peloton’s 75 million person count and applying VirZOOM’s pricing to the mix gives us a market size of between $7.50 billion and $8.96 billion. The total obtainable market, meanwhile, would be about 95 million households in all.  This implies a market opportunity of between $9.50 billion and $11.35 billion.  This does represent a small piece of the broader market. According to one source, the online virtual fitness market was worth about $6.04 billion last year. Between 2020 and 2027, that source believes the industry should grow by 33.1% per annum, taking it to $59.23 billion by the end of our forecast period. This growth is significant, but the space does appear to be crowded by players like Peloton. 

Altogether, the market opportunity is fairly small right now. The existing space is also already dominated by major players. These combined factors make VirZOOM’s place in the market rather questionable, and as a result, its market score is quite low.

VirZOOM has an extensive team of experienced individuals working for it. At the top of the company are its founders: Eric Janszen and Eric Malafeew. Janszen serves as CEO at this time. At present, he is also still working as the Executive Chairman for mKues. That business focuses on providing services for brands and content creators. He also serves as an Economic Analyst at Twin Focus Capital Partners, a wealth management firm for accredited investors. Previously, he was employed as a Board member for TruTouch Technologies, which was working on a sensor aimed at detecting blood-alcohol levels. He also served as the founder and President of iTulip, Inc., an online provider of economic and financial services information. Other roles Janszen has held include serving as the EIR for Trident Capital and as Managing Director of Osborn Capital. Both of these firms were VC-backed and ultimately led to nine exits, including two IPOs and acquisitions. Most of Janszen’s experience is on the financial side of business. These strengths give him the potential to excel in that capacity within VirZOOM. 

The other co-founder of the business is Malafeew. At present, he works as the CTO of the firm. Unlike Janszen — whose experience is valuable but not domain-specific — Malafeew’s experience involves the gaming industry. Previously, he worked as the Chief Architect and Engineering Lead at Harmonix Music Systems. This gaming company has been responsible for such hits as Guitar Hero and Rock Band. Before working there, Malafeew was a Lead Engineer for MBL Research, a distributed game development studio founded by Mark Lesser. And before that, he was a Game Engineer at Kaon Interactive. All of these roles are very relevant when you consider that what makes VirZOOM unique is its gamification of the cycling experience.  

The collective experiences of VirZOOM’s founders are incredibly relevant, and their domain expertise is particularly noteworthy. Together, they appear to be a force to be reckoned with.  This has led to VirZOOM receiving a very strong score for team. 

VirZOOM finds itself in an odd spot in the market. In the sense that it provides content, it’s a competitor of bigger players like Peloton. However, its content is also complementary to any bike system — including Peloton’s — so long as the user in question utilizes an Oculus headset. The emphasis on gaming could make it an attractive player for investors and customers who are interested in that niche. But it’s important to keep in mind that content can be curated by anybody. If the firm can capture a large enough market, it could make a nice bolt-on acquisition for a player like Peloton. But if a competitor targets this opportunity before VirZOOM achieves a critical mass of users, it could prove problematic. VirZOOM’s partnership with Oculus reduces the risk of something like this occurring due to Oculus’ market-leading position in the virtual reality headset space. VR-based gamification combined with a strong partnership have yielded VirZOOM with a high differentiators score.

Surprisingly, the performance of VirZOOM has been mixed in recent years. From 2018 to 2019, for instance, the company’s revenue actually fell, declining from $278,234 to $219,279. Its net loss over that period widened from $2.28 million to $2.83 million. The only positive development was that operating cash outflows improved, narrowing from $1.73 million to $1.56 million. It is possible that some of this discouraging financial performance was a result of VirZOOM’s pivot away from hardware, but we were unable to confirm this. This year, monthly recurring revenue of $18,500 (through July) indicates revenue for 2020 will be about $222,000. Though cash flow will be higher than that, expenses are aiming to be around $1.75 million. These losses and cash outflows are significant for the size of the business. As you might expect, this has left the firm with a lot of debt — $836,859 of it as of year-end 2019.

Despite VirZOOM’s revenue struggles, its number of users is continuing to grow. It has more than 6,000 accounts spread across 42 countries. Though not all of these are regularly active, the number of regularly active users has increased 45% from last year. VirZOOM’s revenue and growing number of users has netted it a very high performance score.

VirZOOM is an interesting business, but it has some challenges. The company’s high debt, significant cash outflows, and net losses are all problematic. While the company’s continued product evolution shows it is taking business seriously and keeping up with the times, the drastic changes also indicate a lack of market awareness early on. As a result, it opted to target the high-margin service space and abandon hardware entirely. Investors may be concerned with VirZOOM’s retention rates, which are not awe-inspiring. Nor is the revenue trajectory of the firm in recent years at a time when the market is growing.

On the bullish side, VirZOOM does have some things going for it. Its subscription offering looks interesting. In addition, the games the business has developed look like they could be attractive for a large number of users. Its partnership with Oculus should also help to reduce some uncertainty. While the user base is small, its year-over-year growth rate is solid. Management, particularly the CTO, has extensive experience in this domain. The fact that so many investors are contributing capital toward this campaign is also nice to see — the more the firm raises today, the better off its financial position will be moving forward. 

Right now, VirZOOM is an interesting business with a cool concept. By focusing on the VR and gaming aspect of digital fitness, it has positioned itself as complementary to many existing products and companies. The management team has strong experience. The company’s growth this year relative to last year was robust. And VirZOOM’s timing is good as the industry as a whole is growing nicely. On the other hand, there are plenty of problems and risks investors should consider — from the high valuation cap to the worrying revenue and user retention. As it is right now, VirZOOM is a Neutral Deal. 

For questions regarding the KingsCrowd staff pick or ratings for this company, please reach out to support@kingscrowd.com. 

Analysis written by Daniel Jones.