Peloton (PTON) Q2 2026 earnings review
Profitability Surges, But The Top Line Continues to Shrink
Peloton delivered a 'beat and raise' on profitability but missed on revenue, highlighting the ongoing struggle to reignite growth. While Adjusted EBITDA surged 39% YoY to $81M (beating the high end of guidance), Revenue fell 3% to $657M, missing expectations. Management touted the 'most substantial period of innovation' in company history, yet Connected Fitness Product revenue dropped 4% YoY. The strategy is clear: intense financial discipline is working, but the pivot to a broader 'wellness' company has yet to arrest the decline in the core subscriber base.
🐂 Bull Case
Gross margins are expanding rapidly. Total Gross Margin hit 50.5% (+320 bps YoY), and Subscription Contribution Margin reached nearly 76%. The business is becoming significantly more efficient.
The company generated $71M in Free Cash Flow this quarter. With Net Debt reduced by 52% YoY to roughly $319M, balance sheet risks are dissipating.
🐻 Bear Case
The core user base is contracting. Paid Connected Fitness subscriptions fell 7% YoY to 2.66 million. Guidance implies this decline will accelerate to -8% in Q3.
Average Net Monthly Churn spiked to 1.9% from 1.4% a year ago, driven by recent price increases. While management expected this, it confirms pricing power is limited.
⚖️ Verdict: ⚪
Neutral. The operational turnaround is impressive—Peloton is now a cash-generating business with healthy margins. However, it is shrinking. Until revenue stabilizes and subscriber losses halt, the 'growth' part of the story remains broken.
Key Themes
Profitability Over Growth
Financial discipline remains the company's strongest asset. Adjusted EBITDA of $81M beat the high end of guidance ($75M). Total Operating Expenses decreased 5% YoY despite a 43% sequential increase for holiday marketing. This efficiency allowed Peloton to raise full-year FY26 Adjusted EBITDA guidance to $450-$500M (up $25M at the midpoint).
Innovation Not Translating to Sales Yet
Despite launching the 'Peloton Cross Training Series' and new AI features ('Peloton IQ'), Connected Fitness Product (hardware) revenue fell 4% YoY to $243.9M. This segment missed the company's own guidance, indicating that new hardware is not yet driving a replacement cycle or attracting enough new users to offset declines.
Churn Impact of Price Hikes
Churn increased significantly to 1.9% from 1.4% in the prior year and 1.6% in the prior quarter. This 50 bps YoY increase coincides with the October 1st membership price increases. While improved unit economics compensate for some loss, a 1.9% monthly churn rate creates a steep treadmill for gross adds to overcome.
Commercial Segment Growth
A bright spot in the report: the integrated Commercial Business Unit (CBU) achieved double-digit revenue growth year-over-year. The launch of the 'Peloton Pro Series' for facilities suggests Peloton is finding traction in B2B markets, diversifying away from the saturated home consumer market.
Leadership Transition
CFO Liz Coddington is leaving the company. While she will remain through March, C-suite turnover introduces execution risk, particularly as the company navigates a complex turnaround. She was instrumental in the 'financial discipline' narrative, so her departure raises questions about the continuity of cost controls.
Other KPIs
Decelerating. Down 11% YoY and 4% sequentially. This secondary revenue stream continues to bleed users, indicating that the standalone app strategy is struggling to retain users without the hardware lock-in.
Accelerating. Up 420 bps from 67.9% in 25Q2. This demonstrates strong leverage on content costs and justifies the strategic focus on high-margin recurring revenue, even as the user base shrinks.
Stable/Positive. While down from $106M in the prior year comp (which had working capital timing benefits), it marks continued positive generation. Net cash provided by operating activities was $72M.
Guidance
Decelerating. The midpoint ($615M) implies a 1.4% YoY decline, compared to the 3% decline seen in Q2. While technically an improvement in rate of decline, it shows no return to growth.
Decelerating. The midpoint represents an 8% YoY decline, worsening from the 7% decline in Q2. The subscriber base continues to erode.
Decelerating. This is a cut from the prior quarter's outlook (previously $2.4B - $2.5B). The midpoint represents a 3% YoY decline. The hardware miss in Q2 has lowered expectations for the full year.
Accelerating. Guidance raised by $25M at the midpoint. This implies an 18% growth over FY25, highlighting that cost savings are outpacing revenue weakness.
Key Questions
Hardware Demand Elasticity
Hardware revenue missed guidance despite a major 'innovation' launch. Is this purely a macro issue, or has the addressable market for premium connected fitness hardware permanently shrunk?
Churn Normalization
Churn spiked to 1.9% following price increases. Do you expect this to settle back toward the historical 1.4-1.5% range in Q3/Q4, or is ~2% the new normal for the remaining subscriber base?
CFO Transition Strategy
With Liz Coddington departing, how will the company ensure that the rigorous cost discipline she implemented is maintained during the search for a successor?