Peloton Interactive (NASDAQ:PTON) executives highlighted improved profitability, continued cost reductions, and steady subscription retention during the company’s fiscal 2026 second-quarter earnings call, while acknowledging that revenue fell short of guidance due largely to weaker-than-expected equipment upgrades by existing members.
Strategic focus: shifting from “connected fitness” to “connected wellness”
CEO and President Peter Stern said Peloton is making progress on a multi-year strategy to evolve from a connected fitness company into a “connected wellness” company, citing broader demand tied to “healthspan” and the “$7 trillion global wellness economy.” Stern said the company’s priorities include expanding leadership in “cardio plus strength,” growing its global commercial footprint, and using AI-driven personalization to support members across more fitness and wellness domains.
- Peloton Cross Training Series and a “first-ever hardware portfolio refresh”
- Peloton IQ, an AI-powered personalization feature set
- New instructors and expanded strength, yoga, and Pilates offerings
Stern said the company entered the holiday period with these launches in place and reported 39% adjusted EBITDA growth year-over-year in Q2, along with higher margins and lower operating expenses tied to restructuring efforts.
Revenue miss tied to upgrade cycles and delivery timing
Peloton’s Q2 revenue came in below guidance, which Stern attributed primarily to fewer-than-expected equipment sales of the Cross Training Series to existing members. He said Peloton believes its installed base is durable and satisfaction remains high, which likely contributed to a longer upgrade cycle than the company anticipated.
Chief Financial Officer Liz Coddington added that total revenue was also impacted by longer-than-expected delivery times, which delayed roughly $4 million of revenue recognition into Q3.
Stern emphasized that sales to new members were “roughly in line” with expectations, supporting confidence that the refreshed lineup can continue attracting new customers. He also noted that more than 70% of Cross Training Series equipment sales to existing Bike owners were for Tread and Row products, which he said was an encouraging signal of members purchasing into new categories.
Subscription retention, engagement, and Peloton IQ adoption
Executives said the subscription business remained resilient. Coddington reported average net monthly paid Connected Fitness subscription churn of 1.9% in Q2, up 50 basis points year-over-year, but better than the company expected given subscription pricing changes announced October 1. She said cancellations briefly rose after the pricing announcement and then stabilized.
Peloton ended Q2 with 2.661 million paid Connected Fitness subscriptions, down 7% year-over-year, but above the midpoint of guidance by about 6,000 subscriptions.
On engagement, Stern said workout time per connected fitness subscription increased 7% year-over-year. He also highlighted early adoption of Peloton IQ, stating that 46% of active members engaged with performance insights and recommendations in its first quarter after rollout, while All-Access member engagement with personalized plans increased more than 10% from Q1.
Stern said Peloton IQ was ranked the most compelling feature in post-purchase research among customers who bought Cross Training Series Bike+, Tread, and Tread+.
Commercial expansion and retail footprint changes
Peloton reiterated its intent to grow beyond the home through commercial offerings. Stern said the Commercial business unit delivered 10% revenue growth year-over-year and exceeded expectations across U.S. and international markets, benefiting from both the Precor and Peloton brands.
In response to a question about hospitality and enterprise, Stern said he expects hotel partners to upgrade to Peloton Pro products as assets reach end of life, noting the company designed the Peloton Pro Series for light commercial environments. He also said Peloton shifted management of commercial technical support and field service to Precor to leverage its experience in higher-use locations.
On retail, Stern said Peloton expanded to 10 Micro-stores by the end of October, describing them as capital-efficient and Peloton-managed. He said Micro-stores drove more sales on average than legacy showrooms, and more than eight times legacy showrooms on a sales-per-square-foot basis. Coddington said Peloton ended Q2 with seven legacy showrooms and 10 micro-stores, down from 28 showrooms a year earlier. Stern also said third-party retail sales lagged expectations, and the company is working with distribution partners on best practices.
Financial results, guidance updates, and CFO transition
Coddington reported Q2 total revenue of $657 million, made up of $244 million in Connected Fitness products revenue and $413 million in subscription revenue. Total gross margin was 50.5%, up 320 basis points year-over-year and above guidance. Adjusted EBITDA was $81 million, up $23 million year-over-year and above the high end of the company’s guidance range.
Subscription gross margin was 72.1%, up 420 basis points year-over-year, which Coddington said benefited from a $9.7 million reduction to accrued music royalties. Excluding that nonrecurring item, she said subscription gross margin would have been 69.7%.
Peloton generated $71 million of free cash flow in Q2, which Coddington said exceeded internal expectations and included roughly $25 million of timing benefits. The company ended the quarter with $1.18 billion in unrestricted cash and cash equivalents and net debt of $319 million, down $351 million (52%) year-over-year. Coddington said Peloton expects to pay down about $200 million of zero-percent convertible notes as they come due and is evaluating ways to optimize its capital structure, including potential refinancing over time.
For guidance, Peloton lowered full-year revenue outlook to $2.40 billion to $2.44 billion, a $30 million reduction from prior guidance, reflecting lower equipment sales to existing members. At the same time, the company raised full-year guidance for total gross margin to roughly 53%, raised adjusted EBITDA guidance to $450 million to $500 million, and increased its minimum fiscal 2026 free cash flow target by $25 million to at least $275 million. Coddington also said the free cash flow target assumes roughly a $45 million impact from tariff exposure.
Management reiterated the goal of achieving positive operating income for the full fiscal year 2026. The company also disclosed that Coddington will leave at the end of March to pursue an opportunity at a private clean-tech energy company, and that a search is underway for her successor.
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.
