Key Points
Peloton finally turned profitable, but weak 2027 guidance shows revenue growth is the main problem.
Time spent working out grew 53% year over year last quarter, suggesting loyal users still see value.
But the number of subscribers keeps falling, dragging revenue and the stock price.
Peloton Interactive (NASDAQ: PTON) just reached an important milestone, posting its first profitable year. Free cash flow grew 17% year over year in fiscal 2026 (ended in June), yet the stock still fell after earnings even though it trades at just 7 times free cash flow.
Despite the cheap valuation, I'm not tempted to buy. Peloton offered weak fiscal 2027 guidance, a sign that the business still faces major headwinds to revenue growth.
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The good: Cost discipline and user engagement trends
Peloton beat management's goal of more than $100 million in annualized cost savings by the end of fiscal 2026, helping drive net income of $63 million.
It also posted encouraging signs in key areas of the business and user engagement:
- Commercial business unit revenue increased by double digits in fiscal 2026.
- Total workout time jumped 53% year over year, with pilates a standout: Pilates workout time rose 44% in the fiscal fourth quarter.
- A growing number of members own multiple connected fitness products, up 20,000 year over year to 316,000.
These are positive signals that its 2.5 million connected-fitness subscribers are getting value from their memberships. Peloton has the potential to be a great business, and management noted it's approaching just 4% penetration of the commercial fitness equipment market, leaving meaningful runway over time.
The bad: Continued subscriber losses
The challenge is breaking through a competitive market to win new customers and grow revenue. Q4 revenue was roughly flat at $608 million, and guidance for fiscal 2027's Q1 implies less than 1% year-over-year growth.
Management also guided fiscal 2027 revenue to $2.3 billion to $2.4 billion, representing a 3.9% year-over-year decline at the midpoint.
The bigger issue is subscriber losses. Subscription revenue rose 7% year over year last quarter, following last year's price increases, but the number of subscribers fell 9%.
So while profitability is improving, the underlying business still isn't as strong as the headline results suggest. Peloton needs to show it can stabilize and grow its subscriber base, and it hasn't yet. That's a big reason the stock is down after earnings.
New products could help. A commercial series bike and treadmill are coming soon, and Peloton plans to expand into new consumer categories in fiscal 2028. But until those catalysts arrive, the company may continue to report weak revenue and subscriber trends.
At this valuation, a return to subscriber growth could drive meaningful upside. But until I see evidence that's happening, I'm not buying the stock.
John Ballard has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Peloton Interactive. The Motley Fool has a disclosure policy.