Peloton’s 2026Q1 Earnings Call: Contradictions Unveiled on Growth, Marketing, Churn, and Connected Fitness Revenue

Date of Call: November 6, 2025

Financials Results

• Revenue: $551M total (Connected Fitness products $152M, down 5% YOY; Subscription revenue $398M, down 7% YOY)
• Gross Margin: 51.5%, down 30 bps YOY (would be 54% excluding $13.5M Bike+ seat post accrual)

Guidance:

• Full-year revenue $2.4B–$2.5B (midpoint ~2% decline YOY).
• Q2 revenue $665M–$685M (midpoint +0.2% YOY; +23% QoQ).
• Full-year total gross margin raised to 52% (up 100 bps vs prior guidance); Q2 ~49% (-250 bps QoQ).
• Full-year adjusted EBITDA $425M–$475M (up $25M vs prior guidance; ~+12% YOY at midpoint); Q2 $55M–$75M.
• Q2 ending Paid Connected Fitness Subscriptions 2.64M–2.67M (midpoint -8% YOY); churn to tick up in Q2 but expected flat for full year.
• Minimum free cash flow target raised to at least $250M (up $50M).

Business Commentary:

• Recall Impact and Financial Adjustment:
• Peloton announced a voluntary recall of approximately 833,000 units of the Original Series Bike+ in the U.S. and 44,800 units in Canada, with an anticipated financial impact on their results.
• The recall cost, including a $13.5 million accrual in Q1 and an additional $3 million in Q4, is reflected in their financial guidance.

• The primary cause of the recall is the potential breaking of the seat post during use, with three such incidents reported.

• Revenue Performance and Product Mix:

• Peloton's Connected Fitness products revenue decreased 5% year-over-year, driven by lower equipment sales and deliveries.
• Despite this, there was a mix shift toward higher-priced products, which offset some of the decrease.

• The company's total revenue in Q1 was $551 million, reflecting higher-than-expected Connected Fitness products revenue.

• Profitability and Cost Management:

• Total gross profit was $284 million in Q1, a decrease of 7% year-over-year, impacted by a $13.5 million accrual for Bike+ seat post inventory costs.
• Operating expenses excluding restructuring and impairment expenses decreased by $30 million or 12% year-over-year.

• This decrease was attributed to successful cost reduction plans and decreased advertising expenses.

• Subscriptions and Churn Dynamics:

• Peloton ended the quarter with 2.732 million Paid Connected Fitness Subscriptions, a 6% decrease year-over-year.
• Average net monthly Paid Connected Fitness Subscription churn improved by 20 basis points year-over-year, aligning with expectations.
• The churn improvement and subscriber trends were influenced by the introduction of new wellness offerings and pricing strategies.

Sentiment Analysis:

Overall Tone: Positive

• Management repeatedly noted outperformance: "exceeded the high end of our guidance on most key metrics," Q1 adjusted EBITDA $118M ("$18M above the high end"), generated $67M free cash flow (up $57M YOY), and raised full-year gross margin and adjusted EBITDA guidance while launching new product lines and AI features—signals of constructive momentum.

Q&A:

• Question from Bill (Investor - leaderboard 'Pizza is Life'): What is the market opportunity for the new commercial business unit? How will you be approaching new geographical markets? And will you successfully integrate Precor and Peloton for a unified B2B offering?
  Response: Commercial opportunity is large with low current share; Precor's commercial-grade equipment, installation and international footprint combined with Peloton's software/content creates a differentiated B2B offering and accelerates international expansion.

• Question from Christopher (Investor - leaderboard 'Create SF'): Are there any plans in the next 5 years to provide dividends?
  Response: Too early to commit to dividends; current priority is continued deleveraging and improving capital flexibility via refinancing—future capital allocation (buybacks, reinvestment, M&A or dividends) will be considered once leverage targets (gross debt/EBITDA ~2x–4x) are met.

• Question from Andrew Boone (Citizens JMP Securities, LLC): Can you compare this recall to the initial recall and help us understand why those 2 recalls weren't combined? Any derivative impacts to the business or brand we should expect?
  Response: Models differ—Original Bike and Bike+ are physically different; at the time of the prior recall there were no Bike+ incidents; financial impact booked as $13.5M accrual this quarter (plus $3M prior), Q2 includes a small churn headwind driven by pauses, revenue impact expected immaterial and already reflected in guidance.

• Question from Arpine Kocharyan (UBS Investment Bank): You're raising EBITDA while revenue guidance is unchanged—does that mean churn assumptions are unchanged post price increase, and how should we think about churn normalizing?
  Response: Price-increase churn has been in line with expectations: an initial spike concentrated among less active members, then moderation; expect higher churn/pauses in Q2, reactivations and improvement in Q3, and flat churn for full year; the EBITDA raise is driven by tariff favorability and accelerated cost savings realization.

• Question from Marni Lysaght (Macquarie Research): Can you walk through working capital nuances feeding free cash flow and inventory posture with new products? Also, does the recall affect Repowered vendors?
  Response: Q1 benefited from ~$30M timing/vendor payment favorability; full-year free cash flow target raised but timing may reverse; inventory build is measured ahead of holiday and balanced between old/new products; Repowered will ensure buyers have access to Bike+ seat post replacements and logistics support.

• Question from Shweta Khajuria (Wolfe Research, LLC): What are demand trends into the holiday season and how big is the commercial opportunity near-to-midterm?
  Response: Connected Fitness category still down but decline has decelerated to low single digits; expect short-to-medium term softness incorporated into guidance but remain bullish long term as strategy expands beyond cardio into broader wellness; commercial (gym/hospitality) market is materially larger and poised for profitable growth supported by Precor integration.

• Question from Bryan Smilek (JPMorgan Chase & Co): On durability of double-digit Connected Fitness gross margins and drivers (mix vs cost savings); and color on Q2 marketing and brand positioning?
  Response: Excluding Bike+ accrual, Connected Fitness gross margin was 15.8% in Q1 (up 660 bps YOY); expect Q2 product margin improvement from mix and fixed-cost leverage and aim for long-term product margins in the 20s; Q2 marketing will increase to drive education/brand for new products and Peloton IQ early in the quarter, then shift to performance for holiday efficiency while keeping LTV:CAC discipline.

• Question from Susan Anderson (Canaccord Genuity Corp.): Have you seen upticks in usage of the new wellness offerings and update on certified refurbished program?
  Response: Early signs positive: 500k members engaged with Club Peloton, October per-member usage (workouts, days, time) increased versus typical seasonality and strength workouts rose; Repowered is currently a trusted marketplace with pickup/delivery options—certified refurb is under consideration but not yet launched.

Contradiction Point 1

Growth Expectations and Market Expansion

It involves differing perspectives on the growth potential and market expansion for Peloton, which are critical for investor expectations and strategic planning.

What are Peloton's growth expectations beyond subscriber stabilization? Is the overall market for Peloton improving? - Youssef Houssaini Squali (Truist Securities, Inc.)

2026Q1: We see the market for fitness as expanding, with a large addressable market, especially among household incomes over $75,000. The focus on behavioral change and wellness trends offers new vectors for growth. We believe Peloton is well-positioned due to our credibility and resources, and we view it as an expanding market with untapped potential. - Peter C. Stern(CEO)

What are Peloton's growth expectations beyond subscriber stabilization? Is the market improving for Peloton? - Youssef Houssaini Squali (Truist Securities, Inc.)

2025Q4: We see the market for fitness as expanding, with a large addressable market, especially among household incomes over $75,000. The focus on behavioral change and wellness trends offers new vectors for growth. We believe Peloton is well-positioned due to our credibility and resources, and we view it as an expanding market with untapped potential. - Peter C. Stern(CEO)

Contradiction Point 2

Marketing Strategy and Focus

It involves changes in the company's approach to marketing, which is crucial for customer acquisition and brand positioning.

How will you achieve double-digit sustainable Connected Fitness gross margins? What are your marketing strategies and target demographics? - Bryan Smilek (JPMorgan Chase & Co, Research Division)

2026Q1: Marketing will focus on brand building and education in Q2, shifting to performance marketing later, ensuring LTV to CAC efficiency. - Liz Coddington(CFO)

How are you enhancing the marketing strategy given the brand changes and new CMO? - Doug Anmuth (JPMorgan)

2025Q3: We're taking a holistic view of marketing, from brand to performance, using media mix models, and ensuring cost-effective member acquisition. The focus is on balance and efficiency across all marketing channels. - Peter Stern(CEO)

Contradiction Point 3

Churn Dynamics and Impact

It involves differing perspectives on churn dynamics and their impact on the company's performance, which is crucial for understanding Peloton's member retention and subscription growth.

Could you clarify your churn assumptions following the price increase and the potential for churn to normalize? - Andrew Boone (Citizens JMP Securities, LLC, Research Division)

2026Q1: Churn post-price increase aligns with expectations, with higher cancellations in the first week. Churn moderated back to normal, and our churn dynamics are positive, with more tenured members offsetting higher churn in segments like rentals. - Peter Stern(CEO)

What's driving the churn numbers? - Curtis Nagle (Bank of America)

2025Q2: Churn numbers have stabilized and are in line with expectations for the quarter, with churn improving over December of last year. Notably, churn has come down significantly from the peak that we experienced in the early part of the fiscal year. - Curtis Nagle

Contradiction Point 4

Connected Fitness Revenue and Growth Strategy

It involves differing views on the growth trajectory of Peloton's Connected Fitness segment, which is a critical area for the company's future growth and financial performance.

What is the demand outlook in the U.S. and Peloton's business opportunities? - Shweta Khajuria (Wolfe Research, LLC)

2026Q1: Demand for Connected Fitness in the U.S. is seeing lower year-over-year declines. We expect short-term softness but remain bullish on long-term growth and the broader wellness economy. - Liz Coddington(CFO)

How do you balance growth strategies with profit improvements? How can you sustain profitability while investing in growth? - Simeon Siegel (BMO)

2025Q2: We remain bullish on the growth path for Connected Fitness but expect that the period of growth will be more measured than we've seen historically. - Peter Stern