Peloton Misses Q2 Revenue as Equipment Sales Lag, Profitability Improves

Peloton reported fiscal second-quarter results that missed revenue expectations, reflecting slower-than-anticipated equipment upgrades among existing members and longer delivery timelines that delayed revenue recognition.

Nevertheless, the quarter showed continued progress on margin expansion, cost discipline and deleveraging, underscoring the company’s push to stabilize the business before returning to sustained top-line growth.

“I will not be satisfied until this company is back to healthy, sustained top-line growth,” CEO Peter Stern said on the call.

Upgrade Cycles Weigh on Top-Line Performance

Total revenue for Q2 was $657 million, falling short of guidance by $8 million. Connected fitness products revenue declined 4% year over year to $244 million, driven by lower equipment sales and deliveries. The shortfall was concentrated among existing members, where upgrade activity lagged expectations.

Notably, revenue was impacted by approximately $4 million of sales being deferred into the third quarter due to longer-than-expected delivery times, adding to pressure on reported results.

Sales to new members came in roughly in line with forecasts, while purchases by existing Bike owners were skewed toward cross-category expansion rather than direct replacements. More than 70% of cross-training series equipment sold to existing Bike owners were Tread and Row products, signaling interest in expanding workouts but a slower replacement cycle overall.

Peloton attributed the slower upgrade pace to the durability of its installed base and high member satisfaction, which likely extended replacement timelines beyond prior assumptions. The company said it had limited historical data to model upgrade behavior at scale, particularly outside of the Bike+ launch several years earlier.

AI Personalization Scales as Engagement Holds Up

Despite revenue pressure, Peloton pointed to growing adoption of Peloton IQ, its AI-powered personalization platform, as a key engagement and retention driver. In the first quarter since rollout, 46% of active members engaged with Peloton IQ performance insights and recommendations.

Engagement with personalized plans among all-access members increased more than 10% from the prior quarter. Based on post-purchase research, Peloton IQ ranked as the most compelling feature among customers who purchased Bike+, Tread and Tread+ within the cross-training series.

The company said AI-driven personalization is making coaching more accessible and responsive to individual goals, helping members engage across a wider mix of cardio and strength content. Workout time per connected fitness subscription increased 7% year over year, reinforcing retention during a quarter that included a subscription price increase.

Top-Line Growth and Profitability Trends

Total gross margin reached 50.5% in Q2, an increase of 320 basis points year over year and 150 basis points above guidance. Margin expansion was driven by a higher mix of subscription revenue and improved subscription margins.

Subscription gross margin rose 420 basis points year over year to 72.1%, benefiting from pricing changes and a $9.7 million reduction in accrued music royalties. Excluding that non-recurring benefit, subscription margin still increased 180 basis points year over year.

Adjusted EBITDA totaled $81 million, up 39% year over year and above the high end of guidance. Free cash flow reached $71 million in Q2, supported by continued cost reductions and working capital management.

Net debt declined 52% year over year to $319 million, reflecting continued deleveraging. The company ended the quarter with approximately $1.18 billion in unrestricted cash and cash equivalents.

The company remains on track to achieve $100 million in annualized run-rate cost savings by the end of fiscal 2026. Gross leverage declined to 3.6x trailing 12-month adjusted EBITDA, down from 6.2x a year earlier.

What Else Stood Out

Peloton said CFO Liz Coddington will leave at the end of March for a role at a private CleanTech energy company and that a search for her successor is underway.

Peloton increased emphasis on brand partnerships, serving as the official fitness partner of the Formula 1 Las Vegas Grand Prix, where on-site classes outperformed engagement benchmarks.

The newly launched Club Peloton loyalty program saw early traction, with 24% of active members engaging within its first month and loyalty discounts driving a significant share of apparel purchases.

Commercial expansion continued to outpace expectations, with 10% year-over-year growth across U.S. and international markets, while Peloton accelerated its shift toward capital-efficient retail through micro stores that generated more than eight times the sales per square foot of legacy showrooms, even as third-party retail lagged.