Peloton Interactive, Inc. Q3 FY2025 earnings call

Peter Stern discussed objectives including improving member outcomes by enhancing cardio experiences, developing a holistic wellness ecosystem, and personal coaching. Peloton saw 5% year-over-year growth in running workouts and 11% growth in walking workouts. In holistic wellness, strength disciplines had a higher mix of workout time. Personalized Plans were launched, with nearly 500,000 members starting plans. On meeting members everywhere, Peloton expanded into gyms via Precor partnership, had a successful micro-store test in Nashville, and grew international paid connected fitness subscriptions. For keeping members for life, member satisfaction scores improved, with service and repair MSAT at 4.5% and member support MSAT at 4.3%. Liz Coddington mentioned Q3 results outperforming guidance, with total revenue above guidance, gross margin up due to revenue mix shift, and cost restructuring ahead of target.

In Q3, Peloton's total revenue was $624 million, with $205 million from Connected Fitness products and $419 million from subscription revenue. Connected Fitness products revenue decreased 27% year-over-year, while subscription revenue decreased 4% year-over-year. Total gross profit was $318 million, an increase of $8 million year-over-year. Connected Fitness products gross margin was 14.3%, up 10 percentage points year-over-year, and subscription gross margin was 69%, up 0.9 percentage points year-over-year. Paid Connected Fitness subscriptions saw a net increase of 5,000, ending the quarter at 2.88 million, while Paid App subscriptions had a net decrease of 12,000, ending at 573,000.

Peloton is raising the midpoint of full year FY '25 guidance for ending Paid Connected Fitness subscriptions (to $2.78 million midpoint), total revenue (to $2.4625 billion midpoint), and adjusted EBITDA (to $340 million midpoint). Total gross margin guidance remains 50%. FY '25 free cash flow is expected to be around $250 million, with a ~$5 million headwind in Q4 from tariffs. Guidance for FY '25 ending Paid App subscriptions is $545,000 midpoint.

Peloton and Precor branded equipment are subject to a 25% tariff on aluminum content. Precor and Apparel products sourced from China are subject to additional tariffs, which could impact financial results.

Q: How are you incorporating AI to chart the future of Peloton?

A: Peter Stern mentioned using AI for member support agents, translation of classes (e.g., 100 classes per day translated), deploying Google Gemini, and empowering Personalized Plans with nearly 0.5 million plans set up.

Q: When will Peloton expand into new markets?

A: Peter Stern said they're focused on growing in existing international markets (U.K., Canada, etc.) first, aiming to dial in first-party vs. partner-led growth and improve customer acquisition efficiency, with potential expansion to adjacent markets next year using AI translation.

Q: Peter, your take on progress on key initiatives and management changes?

A: Peter discussed progress in reducing costs, improving unit economics, winning in Tread, reaching new audiences like men, and strength growth. Mentioned hiring Charles Kirol as COO for innovation and supply chain, and search for CMO, CIO, CCO. Focus on innovating hardware, meeting members in more places, and increasing member lifetimes.

Q: Impact of broader consumer slowdown on business and Q4 guidance?

A: Liz Coddington said business is resilient, with some softness in sales early but bounce back, and subscription business remains strong. Macro uncertainty could impact hardware sales, but lower-priced options and subscription resilience help. Q4 guidance reflects positive outlook.

Q: Marketing strategy and fiscal '26 free cash flow?

A: Peter talked about holistic marketing approach, measuring and optimizing marketing spend, and Liz mentioned fiscal '25 free cash flow at ~$250 million, with fiscal '26 expected to have meaningful positive free cash flow with modest net working capital tailwind.

Q: Return to top-line growth and balance sheet?

A: Peter explained growth equation of average revenue per member, number of members, years per member. Liz discussed balance sheet progress, net debt reduction, and plans to continue deleverage, with focus on capital allocation and potential growth initiatives.

Q: Members, churn, and used equipment activation fee?

A: Peter noted NPS improvements and focus on member value. Liz corrected member vs. subscription metrics, and explained used equipment activation fee as revenue from secondary market subscriptions.