10-K: Peloton Narrows Losses, Boosts Cash Flow in FY25

Peloton Interactive, Inc. reported a significant reduction in net loss and positive free cash flow for fiscal year 2025, driven by effective cost-saving initiatives and improved product margins, despite a decline in overall revenue and subscriptions.

Summary

• Net loss significantly improved to $118.9 million in fiscal year 2025, compared to $551.9 million in fiscal year 2024.
• Adjusted EBITDA turned positive, reaching $403.6 million in fiscal year 2025, a substantial increase from $3.5 million in fiscal year 2024.
• Free Cash Flow became positive at $323.7 million in fiscal year 2025, a significant turnaround from a negative $85.8 million in fiscal year 2024.
• Total revenue decreased by 7.8% to $2,490.8 million in fiscal year 2025 from $2,700.5 million in fiscal year 2024.
• Connected Fitness Products revenue declined by 17.6% to $817.1 million in fiscal year 2025, primarily due to lower demand and fewer product deliveries.
• Subscription revenue decreased by 2.1% to $1,673.7 million in fiscal year 2025, driven by a reduction in both Paid Connected Fitness and App Subscriptions.
• Ending Paid Connected Fitness Subscriptions decreased to 2,799,943 as of June 30, 2025, from 2,976,265 as of June 30, 2024.
• Ending Paid App Subscriptions also decreased to 552,451 as of June 30, 2025, from 621,432 as of June 30, 2024.
• Average Net Monthly Paid Connected Fitness Subscription Churn increased to 1.6% in fiscal year 2025 from 1.4% in fiscal year 2024.
• The company announced a new 2025 Restructuring Plan in August 2025, anticipating approximately $50.0 million in additional cash restructuring charges and $10.0 million in non-cash charges, primarily by the end of fiscal year 2026.
• The 2025 Restructuring Plan is expected to achieve at least $100 million of run-rate savings by the end of fiscal year 2026, building on over $200 million in annual run-rate expense reductions from previous plans.
• Cash and cash equivalents stood at $1,039.5 million as of June 30, 2025.
• Total indebtedness was approximately $1.5 billion as of June 30, 2025, including $990.0 million in secured debt and $549.0 million in convertible notes.

Sentiment

Score: 7

Explanation: The company demonstrated a strong financial turnaround in profitability and cash flow, driven by effective cost-cutting and improved margins. However, the continued decline in both Connected Fitness and App subscriptions, coupled with increased churn for Connected Fitness, indicates ongoing challenges in demand and retention. The restructuring efforts are yielding results, but the core business growth remains a concern.

Positives

• Net loss significantly reduced to $118.9 million in FY25 from $551.9 million in FY24, indicating improved financial performance.
• Achieved positive Adjusted EBITDA of $403.6 million in FY25, a substantial improvement from $3.5 million in FY24.
• Generated positive Free Cash Flow of $323.7 million in FY25, a significant turnaround from a negative $85.8 million in FY24.
• Connected Fitness Products Gross Margin increased to 13.6% in FY25 from 4.9% in FY24, driven by a mix shift towards higher-margin products, lower inventory write-downs, and reduced warehousing and transportation costs.
• Subscription Gross Margin increased modestly to 69.1% in FY25 from 67.8% in FY24.
• Sales and marketing expense decreased by $237.3 million (36.0%) in FY25, primarily due to reduced marketing spend and a smaller retail showroom presence.
• General and administrative expense decreased by $123.7 million (19.0%) in FY25, mainly due to lower personnel costs and professional services fees.
• Research and development expense decreased by $70.6 million (23.2%) in FY25, attributed to reduced average headcount and product development costs.
• Successfully remediated previously identified material weaknesses in internal control over financial reporting related to inventory and the Precor business process environment, concluding internal controls were effective as of June 30, 2025.
• Maintained a strong cash and cash equivalents balance of $1,039.5 million as of June 30, 2025.
• The 2022 and 2024 Restructuring Plans resulted in reduced annual run-rate expenses of more than $200 million by the end of fiscal year 2025, with an additional $100 million expected from the 2025 Restructuring Plan.

Negatives

• Total revenue decreased by 7.8% in fiscal year 2025, indicating a continued decline in overall sales.
• Connected Fitness Products revenue decreased by 17.6% due to lower consumer demand and fewer product deliveries.
• Subscription revenue decreased by 2.1%, reflecting a decline in both Paid Connected Fitness and App Subscriptions.
• Ending Paid Connected Fitness Subscriptions decreased to 2,799,943, and Ending Paid App Subscriptions decreased to 552,451, indicating a shrinking subscriber base.
• Average Net Monthly Paid Connected Fitness Subscription Churn increased to 1.6% in FY25 from 1.4% in FY24, suggesting higher customer attrition for connected fitness products.
• Supplier settlements increased by $26.1 million in FY25 due to the resolution of disputes regarding alleged past and future commitments.
• Interest expense increased by 19.6% to $134.5 million in FY25, reflecting higher borrowing costs.
• The company has incurred operating losses each year since its inception in 2012 and may continue to incur net losses in the future.
• Ongoing legal proceedings, government inquiries, and product recalls (Tread+ and Bike seat post) continue to pose potential financial and reputational risks.

Risks

• Incurred operating losses in the past, may incur operating losses in the future, and may not achieve or maintain profitability in the future.
• May be unable to attract and retain Subscribers, which could have an adverse effect on business and rate of growth.
• Operating results could be adversely affected if unable to accurately forecast consumer demand for products and services and adequately manage inventory.
• May not successfully execute or achieve the expected benefits of restructuring initiatives and other cost-saving measures, and efforts may result in further actions and/or additional asset impairment charges.
• Inability to manage longer-term growth, intervening changes and costs, or implement restructuring initiatives effectively could harm brand, company culture, and financial performance.
• If unable to anticipate consumer preferences and successfully develop and offer new, innovative, and updated products and services in a timely manner, or effectively manage the introduction of new or enhanced products and services, business may be adversely affected.
• The connected fitness market is relatively new and, if general market and specific demand for products and services does not resume growth, or fails to grow as much as expected, business, financial condition, and operating results may be adversely affected.
• Past financial results may not be indicative of future performance.
• Success depends on ability to maintain the value and reputation of the Peloton brand.
• Changes in trade policies in the U.S. and internationally, including the imposition of tariffs, have had, and may continue to have, an adverse effect on business, financial condition and results of operations.
• Any major disruption or failure of information technology systems or websites, or failure to successfully implement upgrades and new technology effectively, could adversely affect business and operations.
• Growing use of artificial intelligence and machine learning technologies may present additional risks and challenges, which could result in reputational and competitive harm, legal liability and adversely affect results of operations.
• Reliance on a limited number of suppliers, contract manufacturers, and logistics partners for Connected Fitness Products; a loss of any of these partners or an interruption or inability to satisfy demand could negatively affect business.
• Limited control over suppliers, contract manufacturers, and logistics partners, which may subject the company to significant risks, including inability to produce or obtain quality products and services on a timely basis or in sufficient quantity.
• A further decline in sales of Connected Fitness Products would negatively affect future revenue and operating results.
• Operates in a highly competitive market and may be unable to compete successfully against existing and future competitors.
• Dependence on third-party licenses for the use of music in content; an adverse change to, loss of, or claim that necessary licenses are not held may have an adverse effect on business, operating results, and financial condition.
• From time to time, may be subject to legal proceedings, government inquiries or investigations, product recalls or similar programs, or disputes that could cause significant expenses, divert management attention, and materially harm business.
• Collection, storage, processing, and use of personal and other data subjects the company to legal obligations and laws and regulations related to security and privacy, and any actual or perceived failure to meet those obligations could harm business.
• Subject to global trade-related laws and regulations for the export and import of goods, as well as forced labor and economic sanctions regulations that could subject to liability, detention of goods, and impair ability to compete in international markets.
• Failure to comply with anti-corruption and anti-money laundering laws could subject to penalties and other adverse consequences.
• Changes in legislation in U.S. and foreign taxation of international business activities or the adoption of other tax reform policies, as well as the application of such laws, could adversely impact financial position and operating results.
• Ability to use net operating loss to offset future taxable income may be subject to certain limitations.
• Intellectual property rights are valuable, and any inability to protect them could reduce the value of products, services, and brand.
• Has been, and in the future may be, sued by third parties for alleged infringement of their intellectual property rights, including by music rights holders.
• Cannot compel music rights holders to license their rights, and business may be adversely affected if access to music is limited.
• Risk of unforeseen costs and potential liability in connection with content produced, license, and distributed.
• Some products and services contain open source software, which may pose particular risks to proprietary software, technologies, products, and services.
• Relies heavily on third parties for most computing, storage, processing, and similar services, and for last mile distribution and Member support; any disruption could have an adverse effect.
• Future success depends on the continuing efforts of key employees and ability to attract and retain highly skilled personnel and senior management.
• If cannot maintain culture, could lose innovation, teamwork, and passion.
• Stock price has been, and will likely continue to be, volatile and could lose all or part of investment.
• Sales of a substantial amount of Class A common stock in the public markets, or the perception that such sales might occur, could cause the price of Class A common stock to decline.
• Dual class structure of common stock has the effect of concentrating voting control among certain directors and other holders of Class B common stock; this will limit or preclude ability to influence corporate matters.
• Does not pay dividends.
• Provisions in charter documents and under Delaware law could make an acquisition more difficult and may limit attempts by stockholders to replace or remove current management.
• Exclusive forum provisions for certain claims, which may limit stockholders ability to obtain a favorable judicial forum for disputes.
• Short sellers of stock may be manipulative and may drive down the market price of Class A common stock.
• Notes are effectively subordinated to existing and future secured indebtedness and structurally subordinated to the liabilities of subsidiaries.
• Indebtedness and liabilities could limit cash flow available for operations, expose to risks, and impair ability to satisfy obligations under the Notes.
• May require additional capital to support business growth and objectives, and this capital might not be available on reasonable terms, if at all, and may result in stockholder dilution.

Future Outlook

The company expects its 2025 Restructuring Plan, which includes a reduction in global headcount, to be substantially implemented by the end of fiscal year 2026, aiming to achieve at least $100 million of run-rate savings. It anticipates additional cash restructuring charges of approximately $50.0 million and non-cash charges of approximately $10.0 million related to this plan. Management believes existing cash and cash equivalents, along with cash flow from operations, will be sufficient to meet working capital and capital expenditure needs for the next 12 months and beyond, though future capital requirements may necessitate additional equity or debt financing. The company intends to settle conversions of its 2029 Notes in Class A common stock if converted prior to September 30, 2025. It does not expect material expenses from the Bike+ seat post replacement plan and does not anticipate significant changes to unrecognized tax benefits or material adverse impacts from the One Big Beautiful Bill Act (OBBBA) in the near future.

Management Comments

• We believe our existing cash and cash equivalent balances and cash flow from operations will be sufficient to meet our working capital and capital expenditure needs for the next 12 months and beyond.
• Upon full implementation, we expect the 2025 Restructuring Plan to achieve at least $100 million of run-rate savings by the end of fiscal year 2026.
• We believe that our magic formula of best-in-class equipment, integrated software, human coaching, and the worlds most supportive fitness community allows us to improve our Member outcomes and sets us apart in the market for connected, technology-enabled fitness.
• We believe we compete favorably across all of these factors, and we have developed a business model that is difficult to replicate.
• We are passionate about continually enhancing the Peloton experience with a focus on driving long-term Member engagement through innovation, immersive content, technologically advanced Connected Fitness Products, multiple tiers of the Peloton Apps, and community support, which may not necessarily maximize short-term financial results.
• We do not currently expect that the expenses associated with this plan [Bike+ seat post replacement] will be material to our financial position.
• Management has completed the implementation of significant enhancements to our inventory management process related to the existence, completeness, and valuation of inventory.
• Management has completed the implementation of significant enhancements to our Precors business process controls.
• Based on that evaluation, our management concluded that our internal control over financial reporting was effective as of June 30, 2025.

Industry Context

The connected fitness market, while experiencing rapid growth during the COVID-19 pandemic, has since slowed, and the broader fitness and wellness market remains heavily saturated. Peloton is adapting its strategy by expanding into third-party retail distribution channels (e.g., Amazon, Dicks Sporting Goods, John Lewis, Fitshop, MediaMarkt, Costco) and exploring new revenue models like the Peloton Rental program. The company is also integrating its Precor acquisition into a new commercial business unit, targeting verticals such as Hospitality, Multi-Family Residential, Gyms, Education, Corporate Wellness, Healthcare, and Community Wellness, leveraging Precor's commercial expertise with Peloton's software and coaching. Competition is intensifying from various sources, including other at-home fitness equipment providers, health and wellness apps, traditional in-studio fitness classes, and fitness clubs. Peloton is also actively incorporating artificial intelligence and machine learning technologies into its products and operations, aligning with broader technological trends in the industry.

Management Changes

Corporate Governance

Legal Proceedings

• The company is subject to ongoing legal and regulatory proceedings, including claims and investigations related to product safety (Tread+ and Bike seat post recalls), intellectual property, consumer protection, and securities matters.
• In December 2022, the company settled with the CPSC regarding the Tread+ recall, agreeing to pay a $19.1 million civil penalty.
• The EDNY Derivative Action, Chancery Derivative Action, and Blackburn Action, all stockholder derivative lawsuits related to the Tread+ recall and alleged breaches of fiduciary duties, reached a settlement-in-principle in July 2024, with the EDNY Derivative Action settlement approved in July 2025 and the Blackburn Action dismissed with prejudice in July 2025.
• A voluntary recall of the original Peloton Bike seat post was announced in May 2023, with the company offering a free replacement seat post as the approved repair.
• The 2023 Securities Litigation, a putative securities class action related to the Bike seat post recall, is ongoing, with a second amended complaint filed in April 2025 after an initial motion to dismiss was granted with leave to amend.
• The Cooper v. Boone, et. al. stockholder derivative complaint, related to the 2023 Securities Litigation, is stayed pending resolution of the motion to dismiss in the securities litigation.
• The SDNY Class Action, a putative securities class action alleging false statements about demand and inventory, had its motion to dismiss granted with prejudice in September 2024, but plaintiffs filed a notice of appeal in October 2024, which remains pending.
• The 2023 Derivative Litigation, related to the SDNY Class Action, is stayed pending final resolution of the SDNY Class Action.
• The company entered into a settlement agreement with a third-party supplier in October 2024, resolving disputes over past and future commitments, resulting in a $23.5 million expense in Q1 FY25 and discontinuing the litigation with prejudice.

Stakeholder Impact

• Shareholders: Experience stock price volatility, potential dilution from future capital raises, and limited influence due to the dual-class voting structure. Benefit from improved financial performance (reduced net loss, positive cash flow).
• Employees: Affected by global headcount reductions as part of restructuring plans, which could impact morale and productivity. The company's ability to attract and retain highly skilled personnel, including key instructors, is crucial for future success.
• Customers/Members: Subject to product recalls (Tread+, Bike seat post) and potential service disruptions. Benefit from ongoing content innovation, new product features, and expanded access through new distribution channels and app offerings.
• Suppliers/Contract Manufacturers: Impacted by changes in demand forecasts and potential renegotiation of agreements. The company's reliance on a limited number of suppliers creates supply chain risks.
• Creditors: Affected by the company's ability to service its debt obligations and comply with restrictive covenants. Recent refinancing activities and improved cash flow are positive for creditors.

Next Steps

• Substantially implement the 2025 Restructuring Plan by the end of fiscal year 2026.
• Continue to optimize the retail showroom footprint over fiscal year 2026.
• Continue to invest in product development, content, studios, systems implementation, and IT infrastructure.
• Potentially seek additional equity or debt financing if current and anticipated liquidity sources are insufficient for future business activities and requirements.
• Continue to support existing Peloton Guide features and Memberships despite discontinuing sales.
• Offer the newest seat post as a replacement for existing Bike+ seat posts.
• Continue to assess the provisions of the One Big Beautiful Bill Act (OBBBA).
• Continue to monitor changes in international trade policies, relations, legislation, and regulations.
• Continue to invest in the cybersecurity program and enhance internal controls and processes.

Key Dates

Recommendation

Peloton has demonstrated a commendable turnaround in its financial health, significantly reducing net losses and achieving positive Adjusted EBITDA and Free Cash Flow in FY25. This indicates effective cost management and operational efficiency from restructuring efforts. However, the core challenge of declining Connected Fitness and App subscriptions, along with increasing churn for Connected Fitness, suggests that demand for its primary products is still softening. While the company is diversifying sales channels and product offerings, sustained revenue growth and subscriber retention remain critical uncertainties. The stock price has been highly volatile, and while the financial improvements are positive, the underlying business model's ability to return to growth in a competitive market is not yet fully proven. An investor should hold to observe if the positive financial trends can translate into renewed subscriber growth and sustained revenue expansion.

Keywords

Peloton, Connected Fitness, Fitness Technology, Subscription Services, Home Fitness, SEC Filing, 10-K, Financial Results, Restructuring, Corporate Governance, Risk Management, Exercise Equipment, Digital Fitness, Wellness, PTON