Exercise equipment company Peloton (NASDAQ: PTON) reported Q2 CY2025 results topping the market’s revenue expectations, but sales fell by 5.7% year on year to $606.9 million. Revenue guidance for the full year exceeded analysts’ estimates, but next quarter’s guidance of $535 million was less impressive, coming in 3.3% below expectations. Its non-GAAP profit of $0.11 per share was significantly above analysts’ consensus estimates.

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StockStory’s Take

Peloton’s results for Q2 reflected ongoing challenges in maintaining subscriber growth but were met with a positive market reaction, driven by better-than-expected revenue and significant improvement in profitability. Management credited the quarter’s performance to higher hardware sales—particularly from both Peloton and Precor products—cost optimization efforts, and a shift toward premium product mix. CFO Liz Coddington emphasized that, “Our successful efforts to expand gross margins, reduce operating expenses and optimize inventory levels enabled us to generate $324 million of free cash flow, an increase of $409 million year-over-year.”

Looking ahead, Peloton’s guidance is shaped by strategic investments in expanding its offerings beyond cardio equipment into broader wellness categories such as strength, mental well-being, sleep, and nutrition. CEO Peter Stern highlighted plans to leverage advanced technologies, including AI, to personalize fitness coaching and drive engagement. He noted, “We plan to support our members’ wellness journeys by expanding our offerings in strength, mental well-being, sleep and recovery, and over time, nutrition and hydration.” Management acknowledged that achieving revenue stabilization and future growth will depend on new product launches, pricing adjustments, and further cost reductions.

Key Insights from Management’s Remarks

Management attributed the quarter’s improved financial performance to a combination of hardware sales momentum, operational cost reductions, and the early impact of restructuring initiatives.

• Hardware sales momentum: Higher-than-expected unit sales of Peloton and Precor equipment in both direct and retail channels supported revenue performance, despite overall year-on-year sales declines.
• Subscription revenue mix: While subscription revenue declined due to lower paid subscriptions, the introduction of a used equipment activation fee and special pricing programs for targeted groups (such as students and first responders) helped partially offset these declines.
• Cost optimization efforts: Significant reductions in operating expenses, including a 20% decrease in R&D and a 28% drop in sales and marketing costs, drove improved margins. The company exited 24 retail showrooms and focused on digital and micro-store formats to reduce overhead.
• Leadership and organizational changes: Peloton appointed new executives, including a Chief Marketing Officer and Chief Communications Officer, and completed hiring for a new Chief Information Officer. The commercial business unit was reorganized under a new leader, positioning Precor as a strategic asset for growth in commercial fitness markets.
• Restructuring and future savings: Management launched a restructuring plan targeting $100 million in annualized run-rate savings by the end of next year, with roughly half already actioned via workforce reductions and indirect spend optimization.

Drivers of Future Performance

Peloton’s outlook for the coming quarters is based on expanding wellness offerings, optimizing pricing, and achieving further cost efficiencies while navigating persistent subscriber headwinds.

• Broader wellness platform: Management aims to evolve Peloton from a cardio-focused brand to a holistic wellness partner, investing in new areas like strength training, mental health, and nutrition content. These initiatives are expected to unlock new customer segments and increase engagement among younger demographics.
• Pricing and cost discipline: The company plans to adjust equipment and subscription pricing to better reflect value and operating costs, including new delivery and return fees. Additional savings are anticipated from ongoing restructuring, particularly in G&A, R&D, and stock-based compensation.
• Tariffs and external risks: Peloton faces potential headwinds from evolving U.S. and international tariffs on fitness equipment and components. Management incorporated $65 million in anticipated tariff exposure into its free cash flow targets and highlighted ongoing monitoring of policy changes.

Catalysts in Upcoming Quarters

In the coming quarters, the StockStory team will be closely monitoring (1) the effectiveness of new product and wellness content launches in attracting and retaining members, (2) the realization of targeted cost savings from the restructuring plan, and (3) the company’s ability to manage tariff-related cost pressures. Execution on personalized coaching and commercial business growth will also be important milestones.

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