Peloton Interactive, Inc. raised its full-year guidance on improving metrics, including reduced subscription churn, for the third quarter ended March 31. On an analyst call, recently hired CEO Peter Stern highlighted four objectives for engaging Peloton’s current and new members and to fuel growth:

  • “Improving member outcomes” by delivering better equipment, software and instruction for members;
  • “Meeting members everywhere,” including where they shop and work out, to reach new members;
  • “Creating members for life” by deepening connections with and among members; and
  • “Operating with business excellence,” specifically optimizing pricing and promotions.

Improving Member Outcomes
Enhancing “member outcomes” involves elevating cardio experiences, developing a more holistic science-backed wellness ecosystem beyond cardio, and “offering ever-more personal coaches to our more than 6 million members,” according to Stern, who was the former co-founder of Apple Fitness+ and joined Peloton at the start of the year.

Peloton has a reputation for cardio-based workouts with its cardio equipment, which, in the quarter, reportedly achieved an NPS (Net Promoter Score) above 70 with Tread exceeding 80 on a scale of minus 100 to plus 100. In the latest quarter, the company saw a 5 percent year-over-year growth in running workouts and an 11 percent increase in walking workouts. Engagement with newer features, such as Pace Targets on Peloton’s treadmill, continued to show improvement. In Q3, over 80 percent of Peloton Tread users who took a running workout, used Pace Targets, up from under 60 percent last quarter.

Around holistic wellness, Peloton reported a higher mix of workout time in strength disciplines quarter-over-quarter and year-over-year. The company offered new kettlebell content in late February, with a reported “nearly 70,000 members completing kettlebell workouts by the end of the quarter.” Beyond strength, members who took meditation classes increased 7 percent year-over-year in the third quarter.

Peloton also foresees opportunities to better tailor and guide members’ goals. Said Stern, “We are lucky at Peloton to have expert instructors, motivated members and subject to our strong privacy safeguards, a wealth of data on what works at both the individual and population levels.”

In January, Peloton launched Personalized Plans to all its members, and “nearly 500,000 had started a plan by the end of Q3.” Said Stern, “We’re pleased with the repeat engagement from members using plans, and our testing shows that members who set up Personalized Plans work out more often and with more disciplines. Over time, we’ll iterate on Personalized Plans to make them more comprehensive, dynamic and data-driven, helping our members take advantage of everything Peloton offers and become the best versions of themselves.”

Meet Members Everywhere
The second objective, “meet members everywhere,” involves reaching potential members in “retail stores, gyms, hotels, online, and in real-life events, both in the U.S. and in the other countries in which we operate,” said Stern.

To gain a larger presence in commercial gyms, Peloton recently launched a pilot program with Precor, the fitness equipment brand acquired by Peloton in 2021, to bring Peloton instructor-led Tread classes to select Precor treadmills. Precor’s staff is also helping Peloton provide installation and maintenance support on branded equipment in gyms and is also testing other new models to bring Peloton to gyms. In February, a Peloton-branded gym opened at the University of Texas at Austin.

At owned retail, a test of a mini-showroom in Nashville, TN, delivered store revenue “larger than the average of other North American retail showrooms, despite having one-tenth the square footage,” said Peloton, with more micro-showrooms planned.

Stern also said third-party retailers “allow us to meet members where they already shop.” He called out the benefits of participating in Amazon’s seasonal sales events, with year-over-year growth in the U.S. on the company’s platform in March from Amazon’s Big Spring Sale. Dick’s Sporting Goods has also partnered to sell Peloton equipment while Costco sold some Peloton items over the 2024 holiday selling period.

Peloton has also set a goal for its content team to increase the number of “real-life events” by three times over the next year.

Internationally, cost-effective translating classes to reach non-English-speaking members remains challenging, with 3,300 classes released in the third quarter. In March, Peloton launched AI-powered subtitle capabilities starting with the existing English, Spanish and German languages. About 100 classes are translated by the company daily.

Creating Members For Life
The third objective, “creating members for life,” involves further increasing Member Support Satisfaction (MSAT) scores at each stage in the member lifecycle.”

At the repair stage, Peloton, during the quarter, worked with its repair partners to pilot dedicated vans stocked with Peloton parts to increase first visit-repair resolution. The company extended the pilot to additional locations. Peloton’s service and repair MSAT score was 4.5 in Q3, an improvement of 5 percent quarter-over-quarter and 7 percent year-over-year.

At Peloton’s call centers, the company introduced AI to handle some customer-service requests “while still delivering the human interactions our members expect,” said Stern. Peloton’s member support MSAT score was 4.3 in the quarter, improving 1 percent quarter-over-quarter and 20 percent year-over-year.

“We see significant opportunities to continue improving our member satisfaction by optimizing the journey from the point of purchase to delivery, installation and onboarding, improving our hardware design to allow for easier installation, and repairs and reducing the number of times that members need to contact our member support teams,” said Stern.

Another path to elevating member engagement is helping members connect. In January, Peloton launched a Team Feed accessible on the Peloton app, where members can build teams with friends to encourage and support each other through sharing workout activities. It also launched Community Teams, which is public and allows up to 50,000 members. As of Q3, members reportedly “have created nearly 100,000 teams with engagement improving within the first month after members join a team.”

Stern said, “We believe that when members feel connected to each other, they’re more likely to stay committed to their fitness regimen.”

Operational Efficiencies
Finally, driving “business excellence” involves “operating with greater efficiency and effectiveness in revenue realization and cost reduction,” said Stern.

Two recent hires, Charles Kirol, COO, and Dion Camp Sanders, chief commercial officer, were recently announced to support improved execution. A search for a CIO, CMO and chief communications officer is ongoing and part of the effort.

Stern noted that Peloton needs to “much more cost-effectively” acquire new members. As part of those efforts, operating costs were reduced 23 percent year-over-year in the third quarter. He noted that Peloton is ahead of plan on its $200 million cost restructuring plan, which it first announced in May 2024.

“We see further opportunities to reduce our costs,” said Stern. “We are formalizing a company-wide program to drive continuous cost improvement, while ensuring our bases for competitive differentiation remain best-in-class.”

Other ongoing initiatives to return Peloton to growth are a focus on “winning in Tread” with the treadmill business, which is twice the size of exercise bikes. He said Peloton has been increasing the percentage of new members buying a Tread.

Peloton is also addressing new audiences, including men, in a marketing campaign supported last fall targeting Millennial males that featured football players and brothers T.J. and J.J. Watt. Stern said, “For the quarter, we were up 300 basis points year-over-year in our mix of men among our new subscribers.”

Stern also suggested that Peloton needs to innovate better around hardware to rebuild buzz. Stern said, “We’ve been doing a great job on software, but it’s all got to come together as a mix of hardware and software and incredible content that we’ve got, so that our members derive even more value from us, and they’ve got reasons to buy more from Peloton.”

Third-Quarter Results
The third quarter saw Peloton deliver its fifth consecutive quarter of positive Adjusted EBITDA and Free Cash Flow due to improving hardware unit economics and streamlining its cost structure. Peloton performed above, or at the high-end of, guidance on key metrics, including ending paid connected fitness subscriptions, total revenues, total gross margin, and adjusted EBITDA.

Total Revenue was $624.0 million in Q3, a decrease of 13 percent year-over-year, comprising $205.5 million of Connected Fitness Products Revenue and $418.5 million of Subscription Revenue. Total Revenue was $9.0 million above the midpoint of the company’s guidance range.

Peloton ended the quarter with 2.88 million Paid Connected Fitness subscriptions, reflecting a net increase of 5,000 for the quarter due to seasonally higher additions and lower churn, which represented a decline of 6 percent year-over-year and exceeded the high end of the guidance range by 10,000 subscriptions. Outperformance relative to guidance was driven by favorable net churn and higher gross additions.

The average net monthly paid connected fitness subscription churn was 1.2 percent in the third quarter, which aligns with Q3 of last year and an improvement of 20 basis points quarter-over-quarter. Net churn was positively impacted by strong performance in subscription cancellations and reactivations, which benefited from marketing outreach to churned members.

Total gross profit was $318 million, an increase of $8 million or 3 percent year-over-year. Connected Fitness products’ gross margin increased to 14.3 percent, while subscription gross margin was 69 percent.

Peloton Interactive’s GAAP Net Loss for fiscal Q3 was $47.7 million, an improvement of $119.6 million year-over-year, and the GAAP Operating Loss was $32.4 million, which was an improvement of $113.8 million year-over-year.

Adjusted EBITDA was $89.4 million in fiscal Q3, a $83.6 million improvement year-over-year and $4.4 million above the high end of the company’s guidance range.

On the call, Peloton CFO Liz Coddington said, “Overall, our third quarter performance reflects a continuation of meaningful profitability improvement, driven by higher gross margins and cost discipline. By generating meaningful free cash flow, we are also de-risking our balance sheet quickly. We are well-positioned for future growth as the leader in the connected fitness category with a high retention, high gross margin subscription business.”

Outlook and Guidance
Peloton increased its full-year 2025 guidance across several metrics.

  • Paid Connected Fitness Subscriptions: Raised to 2.77 million to 2.79 million.
  • Total Revenue: Raised to $2.455 billion to $2.47 billion, representing an increase of $8 million at the midpoint.
  • Adjusted EBITDA: Raised to $330 million to $350 million, representing an increase of $15 million at the midpoint.
  • Total Gross Margin: Outlook of 50 percent remains unchanged.
  • Free Cash Flow: Expects roughly $250 million for the full year, including approximately $5 million headwind in Q4 from tariffs. Previous guidance called for free cash flow of at least $200 million.

Image courtesy Peloton