Peloton FY2026 Earnings: The First Profit After $4.8B of Losses

Peloton just posted its first profitable year in company history: $63.2M of net income on $2.446B of revenue. The catch is the second number, which fell 1.8% — the fourth straight year of decline. This profit was manufactured by cutting costs, not by growing: operating expenses are down 67% from the FY2022 peak while revenue is down 32%. The question for FY2027 is what happens when there is nothing left to cut.

The Headline Numbers​

Peloton's fiscal year ends June 30, so FY2026 is the twelve months ended June 30, 2026. Every figure below comes from the Form 10-K and the Q4 and FY2026 earnings release; multi-year history is from the FY2022–FY2025 Forms 10-K.

The deltas reveal the formula. Revenue fell $44.8M, yet gross profit rose $18.4M because cost of revenue fell faster (−5.2%) than sales did — margin mix doing quiet work. Then operating expenses dropped $178.5M, nearly ten times the gross-profit gain, flipping a $(36.2)M operating loss into $160.7M of operating income. Below the line, interest expense ate most of it ($123.8M), leaving $63.2M of net income — a 2.6% net margin. Meanwhile the cash story is dramatically better than the GAAP story: free cash flow of $377.6M is six times net income, because $197.8M of stock compensation and $57.2M of depreciation never touch cash.

Revenue Deep Dive​

Peloton is now a subscription company that happens to sell hardware: subscriptions are 68.5% of revenue, up from 38.9% in FY2022. The thesis the mix supports is annuity-over-units — and the annuity held, barely, growing 0.1% to $1,675.6M even as the subscriber base shrank 8.8%. That arithmetic only works through price: fewer subscribers paying more each. The release credits "outperformance in equipment sales across both Peloton and Precor brands" for beating its own revenue guidance by $6M, and says Commercial Business Unit revenue "grew double digits year-over-year" — off an undisclosed base, so bank the direction, not a number.

The subscriber base is the leak in the boat. Ending paid connected fitness subscriptions fell by 247,000 to 2.553M, and churn is moving the wrong way: average net monthly churn rose to 1.7% for the year, and hit 2.2% in Q4 — up 100 basis points from Q3. Paid app subscriptions fell 8.9% to 503,000 and total members dropped 8% to 5.5M. CEO Peter Stern's "strong momentum across every part of our business" reads generously against a subscriber file that shrank in every quarter; the outperformance is in monetization and cost, not in audience. Microstores "outperformed internal sales goals" and the fleet doubles in FY27, the Spotify partnership extends digital reach, and the Skōp connected-Pilates acquisition plants a flag in strength — all real, all small relative to 247,000 lost subscribers.

The Margin Story​

This is one of the great margin walks in recent consumer history: gross margin up nearly 20 points in three years, operating margin up 49 points. Mechanically, two engines. First, mix: 71.4%-margin subscription revenue replaced 11.7%-margin hardware revenue, and even the hardware line healed — products gross profit went from deeply negative in FY2022 (cost of $2,433.8M against revenue of $2,187.5M) to +$90.4M as the inventory glut cleared. Second, the axe: sales and marketing fell 5.0% to $400.4M, general and administrative fell 18.4% to $430.3M, and the company "exceeded our plan to deliver more than $100 million of run-rate cost savings by the end of FY26."

Note what sits inside G&A: a $23.8M nonrecurring accrued legal contingency for patent litigation, which management says dragged Q4 Adjusted EBITDA. Back it out and the cost trajectory looks better still — but it also reminds you that G&A still contains surprises. The release carries no pricing language at all — no "pricing momentum," no increases — which is notable for a company whose subscription revenue grew while its subscriber count shrank 8.8%. Somebody raised prices; management chose not to talk about it. Q1 FY2027 guidance for ~57.0% gross margin (+550 bps) says they expect the mix engine to keep running.

The One Big Question: How Real Is the $63M?​

Start with the bridge management wants you to see:

Adjusted EBITDA of $468.2M is 7.4 times GAAP net income, and the single biggest add-back — $197.8M of stock compensation — is over three times the profit itself. This is the recurring tension in the Peloton story: the P&L says the turnaround is real, and the share count says shareholders paid for it. "Activity related to stock-based compensation" issued 31.2M shares in FY2026 alone, and total shares outstanding are up 81.8M (+23%) since FY2023 — three years of steady dilution with no offering involved. Basic weighted-average shares rose 8.9% this year, which is why a $182.1M net-income swing produced only $0.14 of diluted EPS. Dilution is the quiet tax on every per-share metric here.

Then there is the concentration problem: Q4 net income was $61.6M — 97% of the full year's $63.2M. The first three quarters combined earned roughly $2M. One quarter does not make a trend, and Q4 flattered comparisons with its 56.7% gross margin against a 52.6% full-year average. The counterweight is cash: $377.6M of free cash flow cannot be faked with add-backs, and it funded a $199.0M convertible-notes repayment in cash plus a $167.1M increase in the cash balance. The profit is thin; the cash conversion is not. Our read: the $63M is real but fragile — earned, not engineered, yet balanced on a single quarter and a cost base with visibly less left to give.

Tracking a $2.4B Company in Plain Text​

Modeling a company in Beancount clarifies it because double-entry forces every dollar to reconcile — revenue minus every expense must equal net income to the cent, or the books refuse to balance. Read how we model every company for the conventions shared across the fleet. Here is Peloton's FY2026 income statement exactly as the ledger records it (income negative as a credit, expenses positive as debits, with the zero-sum check):

; FY2026 Income Statement — fiscal year ended June 30, 2026
; Check: −2,446.0 + 1,159.3 + 400.4 + 430.3 + 242.8 + 34.6 + 17.9 + 123.8 − 36.4 + 10.1 + 0.2 − 0.1 − 0.1 + 63.2 = 0 ✓
 
2026-06-30 * "Peloton Interactive, Inc." "FY2026 Income Statement"
  Income:Revenue                          -2446.0 MUSD
  Expenses:CostOfRevenue                   1159.3 MUSD
  Expenses:SellingGeneralAdministrative     400.4 MUSD
  Expenses:SellingGeneralAdministrative     430.3 MUSD
  Expenses:ResearchAndDevelopment           242.8 MUSD
  Expenses:OtherNet                          34.6 MUSD
  Expenses:OtherNet                          17.9 MUSD
  Expenses:OtherNet                         123.8 MUSD
  Expenses:OtherNet                         -36.4 MUSD
  Expenses:OtherNet                          10.1 MUSD
  Expenses:OtherNet                           0.2 MUSD
  Expenses:OtherNet                          -0.1 MUSD
  Expenses:IncomeTax                         -0.1 MUSD
  Equity:Adjustments                         63.2 MUSD

The one balance-sheet number that tells the narrative is inventory: $1,104.5M at the FY2022 peak — the bikes nobody wanted after the pandemic pulled demand forward — drawn down to $135.4M, an 88% clearance. That single line is the physical footprint of the turnaround: the glut became cash, the cash ($1,206.6M, up 16%) repaid $199.0M of converts, and the stockholders' deficit narrowed from $(413.8)M to $(139.7)M. Five years of statements, every line traceable to its 10-K:

The Multi-Year Arc​

Subscriber counts for FY2022–FY2023 use the legacy connected-fitness-subscriptions metric; FY2024–FY2026 use the revised paid-subscriptions model, whose restatement impact the 10-K calls immaterial.

The compounding story is a controlled demolition in reverse: cumulative FY2022–FY2025 losses of $4.76B, then green. Revenue fell 32% peak to present while operating expenses fell 67% — the entire profit is the gap between those two slopes. Free cash flow swung $2.7B from trough to present, which funded the deleveraging (net debt down 80% this year to $92.5M, gross leverage 2.8x from 3.8x). The cost of the demolition shows in the subscriber file, down 17% from its FY2023 peak, and in the share count, up 23% in two years. FY2027 guidance extends the pattern honestly: revenue down 3.9% at the midpoint to $2.3–$2.4B, but gross margin up to ~54% and Adjusted EBITDA up 6.8% to $475–$525M. Management is telling you FY2027 is FY2026 again — smaller, richer, cheaper to run.

The Verdict: Bull vs. Bear​

Bull Case

• The cost structure is genuinely fixed: opex down 67% from FY2022 while gross profit nearly doubled ($698.4M → $1,286.7M), and subscription gross profit of $1,196.3M now covers all operating expenses.
• The annuity works: 68.5% of revenue at 71.4% gross margin, subscription contribution margin 74.8%, and revenue-per-subscriber rising enough to offset an 8.8% subscriber decline.
• Cash conversion is elite: $377.6M of free cash flow (15.4% margin) funded $199.0M of debt repayment in cash with $167.1M left to grow the cash pile.
• The balance sheet healed: net debt down 80% to $92.5M, net leverage 0.3x, deficit narrowed $274.1M, inventory overhang gone.
• Guidance de-risks the model: FY2027 EBITDA grows 6.8% on falling revenue, so the thesis no longer requires growth — just continued discipline.

Bear Case

• Revenue has declined four straight years and FY2027 guides down another 3.9%: this is profit by subtraction, and subtraction ends.
• The subscriber base shrinks ~9% a year with Q4 churn at 2.2% (+100 bps quarter-on-quarter): price hikes are masking a leaking annuity, and pricing power over a shrinking base is finite.
• 97% of the year's profit arrived in Q4; the first nine months earned ~$2M combined — the "profitable year" is one quarter deep.
• Dilution is relentless: +81.8M shares in three years (+23%), SBC of $198.6M is 3.1x net income, and diluted EPS of $0.14 prices the patience of saints.
• Hardware is still a melting ice cube: products revenue −5.7% at 11.7% margin, and "double-digit" commercial growth plus microstores are too small to move a $2.4B top line.

Our Take

Peloton earned its first profit the hard way — by dismantling a $3.4B cost structure without breaking a $1.7B subscription annuity — and the cash flow proves the discipline is real. But a company that shrinks revenue, subscribers, and share count purchasing power simultaneously is harvesting, not growing, and harvests end. FY2027's guidance asks investors to pay up for more of the same subtraction; we would need subscriber stabilization — churn back under 1.5% with net adds flattening — before treating this as a business that grows rather than a balance sheet being repaired. Until then, it is the best-executed shrinking company in consumer fitness, and priced for a growth story it has not yet told.