Peloton Interactive NASDAQ: PTON executives said the company returned to year-over-year revenue growth in its fiscal third quarter and is moving from a turnaround phase toward what CEO and President Peter Stern described as “strategic optionality,” supported by stronger cash flow, lower net debt and expanding revenue streams beyond at-home connected fitness subscriptions.
On the company’s Q3 fiscal 2026 earnings call, Stern said Peloton’s strategy of evolving “from a connected fitness company to a connected wellness company” is producing results. He pointed to growth in Pilates, mental well-being content, commercial fitness equipment and content licensing as areas that could help broaden Peloton’s market opportunity.
Revenue Tops Guidance as Profitability Improves
Interim Chief Financial Officer Saqib Baig said Peloton generated total revenue of $631 million in the quarter, exceeding guidance by $6 million and representing positive year-over-year growth. The outperformance was driven by higher connected fitness equipment sales across the Peloton and Precor brands.
Peloton ended the quarter with 2.662 million ending paid connected fitness subscriptions, in line with the midpoint of its guidance range. Average net monthly paid connected fitness subscription churn was 1.2%, improving by 7 basis points from a year earlier.
Total gross profit was $327 million, up $9 million, or 3%, year over year. Total gross margin was 51.9%, up 90 basis points from the prior year but below guidance of roughly 54%. Baig attributed the shortfall versus guidance to “opportunistic promotions” for connected fitness equipment, saying Peloton became more aggressive after seeing a 2x lifetime value-to-customer acquisition cost ratio.
Operating expenses, excluding restructuring, impairment and supply settlement expenses, fell 16% year over year to $267 million. Baig said Peloton remains on track to achieve at least $100 million of run-rate cost savings by the end of fiscal 2026.
Adjusted EBITDA was $126 million, up $37 million, or 41%, year over year. Free cash flow rose 59% to $151 million.
Balance Sheet Strengthens, Capital Allocation Under Review
Peloton ended the quarter with $1.13 billion in cash, down $53 million sequentially after paying down roughly $200 million of convertible debt that matured in February. Net debt fell 70% year over year to $173 million, while gross and net leverage ratios improved to 2.9 and 0.4, respectively.
Stern said the company expects to achieve positive net income for the full fiscal year 2026, in addition to its previously stated goal of positive operating income. He said it would be the first time Peloton has achieved either metric on a full-year basis.
Management is evaluating capital allocation options after the prepayment penalty on Peloton’s term loan expires at the end of May. Stern said the company is considering debt optimization, capital returns and targeted investments, including the possibility of share repurchases. However, he said finalizing and executing a capital allocation plan will be a key agenda item for the company’s permanent CFO once appointed.
In response to analyst questions, Stern said Peloton plans to go through a credit ratings process before any refinancing, adding that a better rating could lower borrowing costs and increase flexibility. He also said refinancing is not required to execute the company’s strategy, but could free up cash flow or enable shareholder-friendly actions.
Spotify Deal and Commercial Business Highlight Diversification
Stern highlighted Peloton’s recently announced content licensing partnership with Spotify, which brings more than 1,400 Peloton classes to Spotify Premium subscribers globally. The classes span strength, Pilates, barre, yoga, meditation, outdoor and cardio, and Peloton expects to add hundreds more classes each month.
Stern said the Spotify partnership provides a new entry point into Peloton’s brand and creates a “high-margin, diversified revenue stream.” Baig said anticipated revenue from the Spotify partnership was already included in Peloton’s prior full-year revenue guidance and will be recorded in the subscription segment.
Peloton’s commercial business unit also continued to grow, with revenue increasing 14% year over year in Q3. Stern said Peloton estimates it has only a 3% share of the more than $10 billion global commercial fitness equipment market.
The company recently announced the Peloton Commercial Series, including a new bike and treadmill designed for high-traffic gym environments. Baig said those products combine Precor’s industrial-grade durability with Peloton’s connected experience and are expected to launch for gym operators in Q2 fiscal 2027.
Product and Wellness Strategy Expands
Stern said more than 400,000 people took Peloton’s highlight classes with instructor Rebecca Kennedy during the quarter, contributing to 48% growth in the company’s Pilates modality. He described Pilates as an increasingly important part of Peloton’s strength program.
Peloton also launched 140 instructor-led meditation and sleep classes in the Breathwrk app, along with daily meditations and Breathwrk programming. Stern said the company sees mental well-being, sleep, nutrition, hydration and recovery as part of its broader connected wellness strategy.
Stern said work on new equipment in one of Peloton’s existing modalities is progressing and that the company expects to introduce new hardware and features in the fall. During the Q&A, he declined to provide specifics for competitive reasons, but said bringing more price accessibility to existing modalities is a priority. He also said Peloton sees multiple opportunities in strength, which the company defines broadly as resistance training.
Peloton also announced the arrival of Sarah Robb O’Hagan as Chief Content and Member Development Officer. Stern said she will focus on accelerating innovation across Peloton’s content ecosystem, driving engagement and deepening loyalty.
Guidance Updated for Fiscal 2026
Peloton raised its full-year fiscal 2026 revenue outlook to $2.42 billion to $2.44 billion, up $10 million at the midpoint from prior guidance. At the midpoint, that still represents a 2% year-over-year revenue decline.
The company now expects full-year gross margin of roughly 52.5%, down about 50 basis points from prior guidance but up 160 basis points year over year. Adjusted EBITDA guidance remains $470 million to $480 million, representing an 18% increase year over year at the midpoint. Peloton expects full-year free cash flow to be around $350 million.
For Q4, Peloton guided for ending paid connected fitness subscriptions of 2.55 million to 2.57 million. Baig said gross additions are expected to decline year over year because of lower equipment sales, while full-year churn is expected to be roughly flat year over year despite a Q2 price increase.
Stern said revenue growth may return before subscription growth because of commercial sales, content licensing, equipment purchases by existing members, price changes and other revenue streams that do not necessarily add connected fitness subscribers. He said Peloton remains focused on “quality revenue” with strong margins and cash flow generation, while still recognizing that connected fitness subscriptions remain a major contributor to profitability.
About Peloton Interactive NASDAQ: PTON
Peloton Interactive, Inc operates a digital fitness platform that combines connected exercise equipment with live and on-demand workout classes. The company's core products include stationary bikes (Peloton Bike and Bike+), treadmills (Peloton Tread and Tread+), and the Peloton Row. Each device integrates a touchscreen display that streams instructor-led cycling, running, strength, yoga, meditation and other fitness classes. Peloton generates recurring revenue through subscription plans, which grant users access to its growing library of workouts, performance tracking tools and community features.
Founded in 2012 by John Foley and headquartered in New York City, Peloton set out to deliver an immersive home-fitness experience by blending hardware, software and content.
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