Peloton Interactive raised its earnings guidance for its fiscal year ending June 2025 after seeing a strong recovery in earnings on an adjusted basis for the holiday quarter on better-than-expected sales. Revenues in its December quarter were down 6.1 percent.

Revenue
Total revenue in the quarter was $673.9 million in the fiscal second quarter ended December 31, comprising $253.4 million of Connected Fitness Products revenue, a decrease of $65.8 million or 21 percent Y/Y, and $420.6 million of Subscription revenue, a decrease of $4.0 million or 1 percent Y/Y.

Total revenue was $13.9 million above the high end of its $640 million to $660 million guidance range, due to higher-than-expected revenue from both segments.

Peloton said Connected Fitness Products’ revenue exceeded expectations from higher-than-expected premium-priced hardware sales, predominantly Tread and Tread+, partly offset by slightly softer overall unit sales. Due to higher-than-expected Tread+ sales, Peloton faced inventory constraints that temporarily led to longer delivery times, delaying some Tread+ deliveries to Q3. Peloton said it also observed higher-than-expected sales for its low-priced Refurbished Bike. Offsetting favorable Tread portfolio and Refurbished Bike sales waslower unit sales in the mid-range price point, specifically the original Bike.

Subscription revenue was higher-than-expected as a result of higher paid connected fitness subscriptions.

Subscriptions
Peloton ended the quarter with 2.88 million ending paid connected fitness subscriptions, reflecting a net decrease of 21,000 in the quarter. This exceeded the high end of its guidance range by 19,000 subscriptions. Outperformance was driven by favorable net churn, partially offset by lower gross additions.

Average net monthly paid connected fitness subscription churn was 1.4 percent. This reflects a 50 basis points improvement Q/ Q, exceeding expectations for seasonal improvement in Q2, and an increase of 20 basis points Y/Y primarily offset by a one-time benefit in net pauses in Q2 of last year. Net churn was positively impacted by lower-than-expected subscription cancellations, lower subscription pauses and higher reactivations. Reactivation performance was positively impacted by recent marketing efforts to re-engage churned subscriptions.

Gross additions performance was due to slightly lower hardware unit sales, a higher Tread portfolio share of total hardware sales, which have lower new subscription attach rates than Bike products, as well as longer delivery times for Tread+ units that delayed subscription activations until Q3. Secondary market activations were in-line with internal expectations and represented roughly 40 percent of total gross additions in the quarter. Peloton ended the second quarter with 579,000 paid app subscriptions, inclusive of Strength+ subscriptions, reflecting a net decrease of 4,000 in the quarter. This result exceeded the midpoint of its guidance range by 9,000.

Adjusted EBITDA
Adjusted EBITDA in the quarter was $58.4 million in the second quarter, which was $28.4 million above the high end of its guidance range and a $140.1 million improvement Y/Y.

Total gross margin was 47.2 percent, 70 basis points above its guidance, due to favorable Connected Fitness Products Gross Margin and favorable Subscription gross margin, partially offset by revenue mix shift toward its Connected Fitness Products segment. Gross margins were 40.3 percent a year ago.

Total operating expenses, including restructuring and impairment expenses, were $364.3 million in the second quarter, a $122.2 million or 25 percent reduction Y/Y, reflecting progress made thus far toward right-sizing its cost structure. Peloton said it is tracking ahead of its cost savings targets for FY25.

FY25 Outlook
Peloton slightly lowered its sales expectations for its fiscal year ended June 2025. For its fiscal year ended June 2025, sales are now projected in the range of $2,430.0 million and $2,480.0 million, representing a decline of 9 percent against sales of $2,700.5 million in fiscal 23024. Under its previous guidance, sales were expected between $2,400.0 million and $2,500.0 million.

Pelton said the revenue change reflects its expectations for favorable subscription revenue from higher paid connected fitness subscriptions and favorable connected fitness products revenue from higher Tread portfolio sales, partly offset by lower Bike portfolio sales.

Adjusted EBITDA for the year is now expected between $300.0 and $350.0 million against $3.5 million a year ago. Under previous guidance, adjusted EBITDA was expected between $240.0 and $290.0 million.

Peloton said the improved guidance “reflects our continued improvements in profitability, largely due to Y/Y gross margin expansion, the operating cost savings we expect to achieve related to our previously announced cost restructuring plan, and reduced Y/Y media spend.”

Image courtesy Peloton