Peloton Q2 Revenue Misses by $8M as Equipment Sales Drop, EBITDA Rises 39%
Peloton’s Q2 revenue was $657 million, $8 million below guidance, driven by a 4% drop in connected fitness product sales to $244 million. Gross margin expanded 320 bps to 50.5%, adjusted EBITDA rose 39% to $81 million, with net debt down 52% to $319 million.
1. Q2 Revenue Shortfall and Equipment Sales Lag
Peloton reported total Q2 revenue of $657 million, missing company guidance by $8 million as connected fitness products revenue declined 4% year-over-year to $244 million. The shortfall was driven by slower upgrade cycles among existing members, with $4 million of sales deferred into Q3 due to extended delivery timelines. While sales to new members were in line with forecasts, over 70% of cross-training purchases by existing bike owners were Tread and Row products rather than direct bike replacements, signaling a shift toward workout expansion rather than immediate hardware refresh.
2. AI-Driven Engagement Boosts Retention
The rollout of Peloton IQ, the company’s artificial intelligence personalization platform, registered engagement from 46% of active members in its first quarter. Personalized workout plans among all-access subscribers rose more than 10% sequentially, and workout time per connected fitness subscription increased 7% year-over-year, underscoring the platform’s role in bolstering retention even as subscription pricing was raised. Post-purchase research identified Peloton IQ as the most compelling feature for customers purchasing Bike+, Tread and Tread+ units.
3. Margin Expansion and Cash Flow Improvement
Peloton achieved a total gross margin of 50.5% in Q2, up 320 basis points year-over-year and 150 basis points above guidance, driven by a higher mix of subscription revenue. Subscription gross margin climbed 420 basis points to 72.1%, supported by pricing actions and a $9.7 million reduction in accrued music royalties. Adjusted EBITDA reached $81 million, a 39% increase from the prior year and above the high end of guidance, while free cash flow totaled $71 million, reflecting ongoing cost discipline and working capital optimization.
4. Deleveraging Progress and Cost Savings Track
Net debt fell 52% year-over-year to $319 million, and unrestricted cash and cash equivalents stood at $1.18 billion at quarter’s end. Gross leverage declined from 6.2x to 3.6x on a trailing 12-month adjusted EBITDA basis. Peloton remains on track to deliver $100 million in annualized run-rate cost savings by the end of fiscal 2026, positioning the company to stabilize its operations ahead of a return to sustained top-line growth.