Peloton told investors Thursday it still has a “steep hill to climb” to achieve profitable growth under its new CEO and won’t be ready to focus on boosting sales until it fixes its balance sheet.
The bike maker posted mixed fiscal second-quarter results, as it topped Wall Street’s sales estimates but lost more than expected as it continued its efforts to make its costly hardware business more profitable.
The company also cut costs in three key areas that it has faced criticism for spending too much on – marketing, administrative costs, and research and development – leading it to blow away analyst expectations for adjusted EBITDA.
In his first earnings call as Peloton’s CEO, Peter Stern said that work is only going to grow.
“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 shares climbed about 9% in trading Thursday.
Here’s how Peloton performed in its fiscal 2025 second quarter compared with what Wall Street was anticipating, based on a survey of analysts by LSEG:
- Loss per share: 24 cents vs. 18 cents expected
- Revenue: $674 million vs. $654 million expected
The company’s reported net loss for the three-month period that ended Dec. 31 was $92 million, or 24 cents per share, compared with $195 million, or 54 cents per share, a year earlier.
Sales dropped to $674 million, down more than 9% from $744 million a year earlier.
Peloton issued mixed guidance that indicated sales growth is still a ways out, but may stabilize by the end of the year, as it lasers in on growing free cash flow and adjusted earnings. It’s projecting sales in the current quarter to be worse-than-expected at a range between $605 million and $625 million, compared to the $652 million analysts had expected, according to LSEG.
However, it anticipates adjusted EBITDA will be between $70 million and $85 million, far better than the $50.4 million Wall Street expected, according to StreetAccount.
Peloton anticipates fiscal 2025 revenue to be roughly in line with expectations. It’s forecasting sales to be between $2.43 billion and $2.48 billion, compared with estimates of $2.47 billion, according to LSEG.
Peloton in recent years has tried to reclaim the supercharged growth that it saw during the pandemic, but now the company is moving away from that strategy in favor of profitability. Sales of its connected fitness products are still falling, and exercise buffs are back in the gym and no longer see as much use for at-home equipment.
However, it draws about $1.7 billion in recurring, high-margin subscription revenue and more than $1.1 billion in gross profit from that side of the business. If it can reduce costs, investors see potential in Peloton’s strategy.
In October, Peloton announced that Stern, a former Ford executive and co-founder of Apple Fitness+, would be its next CEO and president after Barry McCarthy stepped down earlier in the year and two board members briefly took the helm.
Peloton selected Stern in part because of his time running Ford’s subscription business. He’s expected to use that experience to grow member satisfaction and create new offerings that keep customers from pausing or canceling their monthly subscriptions.
During Peloton’s earnings call, Stern made it clear that the company is tripling down on profitability. When asked when the company is going to start thinking about growth, he said he wasn’t yet ready to talk about it but is putting in the groundwork now.
“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.”
During the quarter, Peloton blew away adjusted EBITDA expectations. It posted $58.4 million in adjusted EBITDA, more than double the $26.7 million that analysts had expected, according to StreetAccount. It managed to eke out the number even with a wider-than-expected loss per share by reducing costs in areas that investors and analysts have said Peloton was overspending in.
Sales and marketing costs were down 34%, general and administrative expenses fell 18%, and research and development spending dropped 25%, leading total operating expenses to be down 25% compared with the year-ago period.
Still, finance chief Liz Coddington acknowledged the company still has more work to do.
“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.
“We do see multiple opportunities to right size it,” pointing to areas where technology can substitute for manual, employee labor and corporate real estate expenses as two examples.
Peloton’s holiday quarter is typically its strongest for hardware sales, but most of its revenue decline came from that side of the business, as sales fell about 21%.
However, it is making more than it used to from selling its pricey stationary bikes and treadmills, which have long been a money-losing business. During the quarter, its connected fitness gross margin came in at 12.9%, the first time it’s reached double digits in more than three years, the company said.
Peloton also saw big gains from its seasonal partnership with Costco, which drove more Bike+ sales during its holiday quarter than any other third-party retailer it works with, such as Amazon and Dick’s Sporting Goods.