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February 6, 2025
Peloton Makes Something of a Recovery With Mixed Earnings, Has a ‘Steep Hill To Climb’ To Reach Profitability
Peloton reported its Q2 2025 fiscal earnings on Feb. 6 in a shareholder letter, largely defeating Wall Street expectations by cutting costs around marketing, administrative expenditures, and research and development to produce an impressive adjusted EBITDA of $58.4 million, versus $26.7 million expected by industry analysts, according to CNBC.
The shareholder letter indicated that Peloton had a “steep hill to climb” to reach sustained, profitable growth, particularly given the headwinds facing the company. Of note, as Retail Dive detailed:
- Q2 revenue dipped more than 9% year-over-year to rest at $673.9 million.
- Peloton’s connected fitness (tech that brings interactive fitness equipment into people’s homes) revenues tumbled 21% year-over-year to $253.4 million.
- Subscription revenue dipped 1% to $420.6 million.
- Peloton’s member base declined by 4% year-over-year, as did paid connected fitness subscriptions.
On the other hand, Peloton — under the guidance of new CEO Peter Stern — managed to significantly trim its losses during Q2. Operating loss came in at $45.9 million versus $187.1 million the year prior, and net loss improved to $92 million from $194.9 million a year ago.
“While we are working on our long-term growth strategy for fiscal 26 and beyond, our financial goals for fiscal 25 and continued discipline toward improving gross margins, reducing operating costs and deleveraging our balance sheets are and will remain top priorities for me,” said Stern.
Peloton CEO Stern Charged With Leading the Brand to Profitability After Post-Pandemic Slump
Struggling to find the same wild growth that it enjoyed during the stay-at-home heyday of the COVID-19 pandemic, Peloton has since pivoted to focus on slashing unnecessary costs while bolstering the foundations of a healthier, more resilient subscription model. Subscriptions are falling, and many individuals who missed the gym during the lockdowns have returned to their usual routines at the local fitness center.
In October 2024, after outgoing CEO Barry McCarthy departed the post and two board members briefly took the helm, Peter Stern was charged with righting the ship. Stern, a former Ford exec and founder of Apple Fitness+, was selected — at least in part — due to his experience in executing and maintaining profitable subscription services.
“I want to take a beat on unit economics and right sizing our costs, because both of these are foundational for us to address before we can return to growth,” said Stern. “We’re setting the stage to be able to grow while ensuring … we’ll have the financial capacity that we need to make investments that have strong returns.”
Under Stern’s watch, sales and marketing costs were cut by 34%, general and administrative expenditures were slashed by 18%, and R&D spending dipped by 25%, creating a scenario in which 25% of all operating costs were cast to the wayside in the path to profitability.
Adjusted EBITDA is projected to come in — for the current quarter — at around $70 million to $85 million, per CNBC, significantly outpacing the $50.4 million analysts had previously anticipated.
Peloton CFO Liz Coddington spoke to the centrality of cost-cutting to the company’s current game plan.
“While we’re pleased with this progress that we’ve made, we do see further opportunities for cost optimizations, and we’ve built a culture of cost discipline into our company. We know that our [operating expenses] as a percent of revenue is still too high overall for the long term, and especially that’s true within our [general and administrative] area,” Coddington told analysts, as CNBC detailed.
Peloton Expands Its Distribution Network via Partnerships With Costco, Nordstrom, and Target
Peloton certainly hasn’t been resting on its laurels as it attempts to regain its financial footing.
For starters, Peloton partnered with Costco this past holiday season to sell an exclusive Bike+ combo at 300 of the warehouse club’s locations between Nov. 1 and Nov. 15, which marked the first retail collaboration made by the fitness company on U.S. soil. The Bike+ bundle was offered at a price point of $1,999, or $2,199 delivered.
Next was a team-up with Nordstrom, as Peloton began offering its apparel through Nordstrom’s digital marketplace. That collaboration kicked off in late November of 2024.
Finally, Peloton teamed up with Target last month to stock the latter’s new third-party marketplace. Over 140 items from Peloton are on offer via Target Plus, ranging from men’s and women’s apparel to an array of accessories.
In the future, the company aims to expand its customer demographic to include running and strength training advocates. According to Peloton data, 2 million unique members completed at least one strength training exercise during Q2, and in December the company launched a strength training app that achieved 220,000 monthly active users in short order.
Further, the company sees less churn for users who participate in multiple different fitness activities.
“Our monthly churn rate is roughly 60% lower for Connected Fitness subscriptions engaging with two or more disciplines per month versus those engaging with just one,” Peloton said in its shareholder letter.
Discussion Questions
Will Peloton be able to defeat the so-called “steep hill” it has to climb to achieve stable profitability?
Which notable obstacles — whether direct competition, difficulty navigating sales channels, or broader cultural changes or trends — stand in the way of Peloton’s success in the near term?
Is CEO Peter Stern correct to focus on slashing operational costs so significantly, in such a short time frame, in his goal to correct the company’s course?
Poll
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Peloton is a business of two halves. The product side is something of a mess. The products are expensive, and demand for them has been on a downward slide for a while. Margins are also thin, although Peloton has bolstered them over recent quarters. Historically, there has been far too much exuberance around this side of the business – its potential has been wildly overestimated. The subscription side is more robust with stronger margins, and it is in this arena that Peloton should focus. However, the latest results here show worrying deterioration in membership and this is something that urgently needs to be addressed to support the bottom line.
With trends in the fitness industry remaining popular. Many people have stuck with home fitness because of the cost saving and flexibility. The boom with smart fitness equipment remains strong and hybrid fitness routines mixing gym visits with home fitness are becoming the norm. Pelaton struggles have continues for a variety of reasons. One is a miscalculation on inventory leading to access inventory and lower sales. They also relay heavy on subscriptions but they have not been able to retain users and their are alternatives like You Tube, Apple ect. They have had multiple recalls that have cost millions and unless they focus on cutting cost in manufacturing, grow their subscriptions and become a fitness and content brand, I believe they will lose out to bigger players.
Costco, Nordstrom, and Target …well that pretty well covers the bases on the good-to-bad(at-least-at-the-moment) performance meter, doesn’t it? My less than 500 word take on Peleton is that it’s something of a fad product. that came along at just the right time, and then ran into headwinds when the world did a 180. It needs to acquaint potential users on what’s it’s about, now that the strength of influencers and the talk show circuit have run their course; the slate of retailers they’ve recruited – my glib comments aside – covers a lot of territory. I think it’s a wise move and I wish them well; how far they’ll go is anyone’s guess.
How many people do you know that no longer think about the Peleton in their basement? That will tell you all you must know about the future.
The new retailers will get tired of it as well.
Gene, I bought a SoloFlex when it came to the market YEARS ago. I thought it was great for a while(cost a lot of money at the time), till something better and more affordable came on the market. It became a clothes hanger. This will happen to Peleton. I know owners that have moved on to better, more affordable options. It happens.
Cost-cutting is necessary but not sufficient. It is not the answer for Peloton. Right-sizing the organization for improved unit economics cannot be done effectively without a line of sight to the company’s strategy for return to growth. Without the latter, cost-cutting will be more arbitrary and across the board than done with strategic intention. Partnerships with Costco and others for overpriced equipment tainted by past recalls (2020, 2021, 2023) will not secure the future. Of the priorities stated by Mr. Stern, deleveraging the balance sheet is the most strategic one, which, when combined with intelligent cost-cutting and a focus on the membership and subscription part of the business, can extend the runway for Peloton’s promised turnaround.
I wish Mr. Stern all the best, but Peloton has more than a steep hill to climb, it’s a jagged mountain. With more cost cutting almost certain (from CFO’s comments), Peloton might improve its financials, but saving its way to growth is not a long term strategy. And when there is a continuous target on SG&A (people), the culture hit is almost assured. Peloton’s future is membership and subscriptions and that’s where Mr. Stern ought to focus investment dollars. I wish him well.
Peloton is improving on its customer churn compared to recent post-Covid years. The people who preferred an in-person fitness/gym memberships already made that move back. Remaining Peloton customers likely choose to workout at home, saving time, travel and hassles over in-person fitness memberships, or prefer a more focused offering for the money.
On content and the user experience, Peloton is keeping classes refreshed, with new artist collaborations and fitness offerings without customers seeing or feeling cuts at the corporate office. Keep this momentum going without losing its brand value and they’ll be fine.
They’re prioritizing the right things in order to attract and keep loyal customers who want this fitness experience.
No. Let’s call Peloton what it is, a pandemic business that is no longer what consumers want. Peloton had the option to adapt or perish, and right now it is perishing. You can’t make a business grow when it is losing money and customers, no matter how you spin it. Peloton needs increasing consumer demand to fuel its very expensive operations and products, and those days have passed. Peloton needs to shift everything to focus on what their new consumers really want…and it is not the old Peloton or anything similar.
We would not be writing or thinking about Peloton at all if the Pandemic had not occurred. This is a company that got lucky with a perfect set of events, until the luck ran out.