Q2 2025 Earnings Summary
- Peloton is significantly improving profitability, raising its full-year adjusted EBITDA target by $60 million for fiscal 2025 due to ongoing gross margin expansion and operating expense savings. The company is on track to exceed its $200 million annualized cost savings plan by the end of fiscal 2025, demonstrating effective cost management and a culture of cost discipline.
- Member satisfaction is increasing, with Net Promoter Scores improving across all Bike and Tread products to over 70. Peloton's focus on engaging members in multiple fitness disciplines has resulted in a 60% reduction in churn rate for those engaging in two or more disciplines per month, which is expected to drive subscriber retention and long-term value.
- Peloton is successfully deleveraging its balance sheet, reducing net debt by $285 million or 30% year-over-year in Q2, and lowering its leverage ratio from 7x in Q1 to 2.7x in Q2. This deleveraging improves financial flexibility, reduces interest expenses by approximately $5 million annually, and positions the company for future sustainable and profitable growth.
- Uncertainty about future growth prospects: The company is not ready to provide guidance or details on when or how it will return to top-line growth. Peter Stern stated, "I'm not ready to talk about when or the details of how we plan to turn the business back to top-line growth."
- Expected increase in churn due to secondary market mix shift: The company expects churn rate to increase modestly because "we continue to see a mix shift of our subscriptions into the secondary market, which has a lower retention rate compared to subscriptions where customers purchase their fitness hardware directly from us."
- Challenges with marketing spend and profitability: Balancing brand and performance marketing is challenging, as brand marketing is "more difficult to measure and justify," which may impact profitability. Peter Stern acknowledged that "the fitness category... you do have to remind people, to get back into the market and do the right thing for themselves."
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | -9% | Lower demand for hardware continued to pressure top-line results, reducing overall sales compared to the prior year. Subscription growth helped partially offset the decline but was insufficient to fully counter reduced Connected Fitness sales in the current economic environment. |
Connected Fitness Products | -21% | The steep drop resulted from further softening in hardware demand and macro challenges like inflation, leading consumers to limit discretionary spending. The company’s emphasis on cost controls and inventory management also led to fewer shipments compared to previous periods. |
Operating Income (EBIT) | $20.9M vs. -$187.1M | This significant turnaround in operating income was driven by aggressive cost-cutting measures, including lowered marketing spend and streamlined operations. Improved gross margins from favorable product mix also contributed to positive EBIT compared to the prior year’s loss. |
Net Income | $93.7M vs. -$194.8M | The swing to positive net income reflected ongoing restructuring efforts and reduced operating expenses. Higher-margin subscription revenue and the absence of large-scale impairment charges seen in previous periods further supported net income growth. |
EPS (Diluted) | $0.24 vs. -$0.54 | The sharp upswing in EPS was primarily a result of improved profitability as operating expenses declined and gross margins rose. With less share-based compensation and fewer restructuring costs than in prior periods, the company’s bottom line strengthened, lifting EPS above negative territory. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Revenue | Q3 2025 | no prior guidance | $605 million to $625 million | no prior guidance |
Gross Margin | Q3 2025 | no prior guidance | 50% | no prior guidance |
Adjusted EBITDA | Q3 2025 | no prior guidance | $70 million to $85 million | no prior guidance |
Ending Paid App Subscriptions | Q3 2025 | no prior guidance | 560,000 to 580,000 | no prior guidance |
Total Revenue | FY 2025 | $2.4B to $2.5B | $2.43B to $2.48B | raised |
Gross Margin | FY 2025 | 49.0% | 50% | raised |
Adjusted EBITDA | FY 2025 | $240M to $290M | $300M to $350M | raised |
Free Cash Flow | FY 2025 | at least $125M | at least $200M | raised |
Ending Paid Connected Fitness Subscriptions | FY 2025 | 2.68M to 2.75M | 2.85M to 2.87M | raised |
Ending Paid App Subscriptions | FY 2025 | 550,000 to 600,000 | 550,000 to 600,000 | no change |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Revenue | Q2 2025 | $640M to $660M | $673.9M | Beat |
Total Gross Margin | Q2 2025 | 46.5% | ~47.2% (calculated from Revenue of 673.9– COGS of 355.6Over Revenue) | Beat |
Adjusted EBITDA | Q2 2025 | $20M to $30M | ~$105.2M (calculated from Operating Income of 20.9+ D&A of 22.8+ SBC of 61.5) | Beat |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Profitability and cost management | Consistent improvement in gross margins, operating expense reductions, and free cash flow across Q3 2024, Q4 2024, and Q1 2025. | Reported 4th consecutive quarter of positive free cash flow, raised full-year EBITDA guidance, and further reduced operating expenses. | Continues to strengthen, with repeated restructuring successes driving profitability. |
Subscriber churn and retention | Churn ranged from 1.2% to 1.9% in previous quarters, with strong retention and focus on reducing pause rates. | Churn at 1.4%, showing quarter-over-quarter improvement and emphasizing multi-discipline engagement to lower churn. | Slight improvement in churn, highlighting success in reactivations and member engagement. |
Marketing efficiency and brand awareness | Emphasis on LTV to CAC ratios, reduced media spend, and targeted demographics like men in Q3 2024, Q4 2024, and Q1 2025. | Showed ongoing push for brand marketing with disciplined spend, improving LTV to CAC by 15% year-over-year, with a goal of 2x‒3x. | Consistent focus on cost-effective marketing, targeting new audiences while reducing overall spend. |
Hardware sales trends (Bike and Tread) | Mixed performance: Tread seen as a growth opportunity; Bike sales challenged by fewer promotions and macro factors in Q3 2024, Q4 2024, and Q1 2025. | Tread and Tread+ outperformed expectations, while original Bike sales were intentionally de-emphasized to improve margins. | Shift toward Tread products with higher margins; strategic pullback on Bike promotions. |
International expansion | Previously discussed transitioning to 3rd-party models in Germany and optimizing go-to-market in Q3 2024, Q4 2024, and Q1 2025. | Briefly mentioned: encouraging performance in international hardware sales but no major new expansion plans. | Less emphasis on extensive expansion; focus remains on profitability in existing global regions. |
Deleveraging and balance sheet | Achieved positive free cash flow, refinanced debt, and extended maturities in Q3 2024, Q4 2024, and Q1 2025. | Net debt reduced by $281M year-over-year, leverage ratio improved to 2.7x, and annualized interest savings of $5M. | Continued progress with lower leverage, stronger balance sheet, and reduced interest expenses. |
Member satisfaction and Net Promoter Scores | Improvements noted for Tread+ NPS (76) in Q4 2024; no Q1 2025 updates. Positive trends mentioned in Q3 2024. | NPS for Bike and Tread rose above 70; member support satisfaction increased to 4.3 out of 5, up from 3.1 a year ago. | Marked increase in satisfaction, indicating stronger member loyalty. |
Uncertainty around future growth prospects | Cited macroeconomic factors, post-COVID normalization, and caution on subscriber mix in Q3 2024, Q4 2024, and Q1 2025. | Still uncertain: management not ready to project top-line growth timing, focusing on FY25 financial goals first. | Ongoing caution amid profitable execution; future growth plans remain tentative. |
Content innovation and new fitness modalities | Expanded running programs, introduced gaming-inspired workouts, and tested Strength+ in prior periods. | Launched Strength+ app and new running features (e.g., 10K plan, Pace Targets). Over 70,000 teams formed with new social tools. | Continued expansion of modalities, focusing on strength and running to drive engagement and retention. |
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Growth Plans vs Profit Improvement
Q: What's your thinking on growth path versus ongoing profit improvement?
A: CEO Peter Stern isn't ready to share specifics on returning to top-line growth, but they're "earning the right to grow" by rightsizing expenses (down 25% YoY in Q2 ), improving equipment gross margins (back to double digits for first time in years ), and increasing LTV to CAC ratio (improved by 15% YoY ). They've reduced net debt and leverage ratios, enhancing financial capacity for investments. Three growth levers are innovation in new products and services, meeting members in more places, and deepening connections with existing members. -
Deleveraging Milestones and Benefits
Q: Can you highlight milestones and benefits of your deleveraging plan?
A: CFO Liz Coddington states they've increased the minimum free cash flow target to at least $200 million in FY'25, reflecting an improvement of over $200 million YoY. Net debt reduced by $285 million or 30% YoY in Q2 , and leverage ratio declined from 7x in Q1 to 2.7x in Q2. This enables annualized interest expense savings of approximately $5 million going forward , lowering risk and positioning for future sustainable growth. -
Free Cash Flow Improvement
Q: What's driving the free cash flow improvement in Q2 and full-year guidance?
A: Q2 free cash flow of $106 million exceeded expectations , due to both timing (delayed invoices for music and media vendors ) and permanent factors (higher adjusted EBITDA and faster operating expense reductions ). They raised the full-year free cash flow target to at least $200 million, reflecting inventory production improvements and expense savings. -
Churn Rates and Future Impact
Q: What's driving the encouraging churn numbers, and what's assumed in guidance?
A: Peter highlights an exceptionally low average net monthly churn rate of 1.4% for Connected Fitness subscriptions. Factors include loyal long-standing members and increased engagement levels. In Q3, churn is expected to remain in line with Q2. However, for the full year, churn may increase modestly due to a shift to secondary market subscriptions with lower retention and the end of one-time benefits from fiscal '24. -
Potential Subscription Price Increases
Q: How should we think about potential price increases in light of improving churn?
A: Peter acknowledges pricing as a powerful lever they're evaluating carefully. In Q1, they raised prices for the rower in North America and for Bike and Bike+ in international markets. They also reduced promotional days during the holiday season. Regarding subscription pricing, they recognize its importance and won't take actions lightly, sharing more when ready. -
Cost Optimization Opportunities
Q: Where do you see low-hanging fruit for further cost optimization?
A: Peter identifies opportunities in IT to reduce manual work and optimize licenses. They're reducing corporate real estate expenses, though savings will take time due to contracts. Deleveraging efforts have already achieved immediate benefits like a $5 million reduction in annualized interest expenses. -
Marketing Investment Efficiency
Q: How do you view the mix between brand and direct marketing investments?
A: Peter explains that while brand marketing remains important, especially in fitness, they're ensuring efficiency through disciplined methods like media mix modeling. They focus on measurable performance marketing. In Q2, the reduction in marketing spend exceeded the decline in Connected Fitness sales, improving the LTV to CAC ratio toward their goal of exceeding 2:1. -
Stabilizing Gross Addition Declines
Q: What levers can stabilize declining gross additions?
A: Peter emphasizes super-serving existing members, noting member satisfaction scores increased from 3.1 to 4.3 over the year. Encouraging engagement in multiple disciplines reduces churn by 60%. They're launching new capabilities and promoting modalities like Strength to add value. -
Connected Fitness Gross Margins Outlook
Q: Where do you see Connected Fitness gross margins going, and how can you improve them?
A: Liz says they've improved gross margins through shifting to higher-margin premium products, optimizing discounts, and pricing changes. They expect to maintain gross margins in Q3 and FY'25 by focusing on these areas, with opportunities for further expansion over time.
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