Peloton PTON FY2026 Earnings: First Annual Profit in Six Years, But Subscribers Fell 247,000
The Hook
Peloton $PTON just reported its first annual net profit in six years: $63.2 million, against a $118.9 million loss the year before. It did it while losing 247,000 subscribers.
That is not a figure of speech. Ending Paid Connected Fitness Subscriptions fell from 2.800 million to 2.553 million in fiscal 2026, down 8.8%. Paid App Subscriptions fell from 552,000 to 503,000. Monthly churn rose from 1.6% to 1.7%. And subscription revenue still went up, by $1.9 million. The 10-K explains why in a single sentence: subscription revenue rose "primarily due to the subscription price increases that became effective during the three months ended December 31, 2025 ... partially offset by decreases in Paid Connected Fitness and App Subscriptions." Peloton charged more to fewer people and netted nine tenths of one percent.
Company Snapshot
Peloton Interactive sells connected fitness hardware (Bike, Tread, Row, and Precor-branded commercial equipment) and the subscription content that runs on it. It reports two segments: Connected Fitness Products and Subscription. Revenue is overwhelmingly domestic, with $2,117.1 million of the $2,446.0 million total attributable to the United States, or 87%. The company employed 1,736 people in the US and 526 internationally as of June 30, 2026.
This analysis covers the 10-K for fiscal year 2026, ended June 30, 2026, filed with the SEC on August 6, 2026. Every figure below comes from that filing or the XBRL data attached to it.
The Financial Story
Revenue fell for the fourth straight year. Total revenue was $2,446.0 million, down 1.8% from $2,490.8 million. Against fiscal 2022's $3,582.1 million, Peloton has shed 31.7% of its top line. Yet operating income swung from a $36.2 million loss to $160.7 million of profit, a $196.9 million improvement.
| Fiscal year | Revenue | Gross profit | Operating income | Net income |
|---|---|---|---|---|
| 2022 | $3,582.1M | $698.4M | -$2,734.0M | -$2,827.7M |
| 2023 | $2,800.2M | $923.5M | -$1,197.1M | -$1,261.7M |
| 2024 | $2,700.5M | $1,206.5M | -$529.0M | -$551.9M |
| 2025 | $2,490.8M | $1,268.3M | -$36.2M | -$118.9M |
| 2026 | $2,446.0M | $1,286.7M | +$160.7M | +$63.2M |
Almost none of this year's swing came from gross profit. This is the part that gets told wrong. Over four years, gross profit did nearly double while revenue fell by a third, which is a genuine margin reconstruction. But in fiscal 2026 specifically, gross profit contributed just $18.4 million of the $196.9 million operating swing, or 9.3%. Operating expenses fell $178.5 million, from $1,304.5 million to $1,126.0 million, and that supplied the other 90.7%. The profit is an expense story, not a margin story.
And the gross profit line hides two segments moving in opposite directions. Subscription gross profit rose $39.2 million. Connected Fitness gross profit fell $20.8 million, an 18.7% decline, with segment gross margin dropping from 13.6% to 11.7%. Management attributes the hardware deterioration to higher import tariff charges, a $13.5 million expense for the Original Series Bike+ seat post recall announced in November 2025, higher promotional discounts, and a mix shift toward lower-margin products. The hardware business got worse this year, not better.
| Segment, FY2026 | Revenue | Share of revenue | Gross profit | Share of gross profit | Gross margin |
|---|---|---|---|---|---|
| Subscription | $1,675.6M | 68.5% | $1,196.3M | 93.0% | 71.4% |
| Connected Fitness | $770.4M | 31.5% | $90.4M | 7.0% | 11.7% |
| Total | $2,446.0M | 100% | $1,286.7M | 100% | 52.6% |
Stated plainly: subscription produces 93% of Peloton's gross profit on 68% of its revenue. The hardware division, which is the entire reason the brand exists, generated $90.4 million of gross profit against $123.8 million of interest expense. The equipment business does not cover the interest bill.
The subscription margin gain is also a cost cut, not a scale effect. Subscription revenue was flat at $1,675.6 million, but subscription cost of revenue fell $37.3 million, or 7.2%, driven by lower music royalty and platform streaming costs and lower depreciation. Subscription gross margin went 67.8%, then 69.1%, then 71.4% across three years. Every layer of this profit traces to spending less.
One caveat that matters for reading the expense lines. Beginning in the first quarter of fiscal 2026, Peloton reassigned executive compensation and corporate overhead out of General and administrative into cost of revenue, sales and marketing, G&A, and R&D. Prior periods were not recast. So the headline $97.0 million G&A decline is part genuine cost reduction and part reclassification: the filing attributes portions of both the $81.4 million personnel decrease and the $16.0 million rent decrease to that reassignment, and says R&D rose partly for the same reason. Total operating income is unaffected and fully comparable. The caption-by-caption comparison is not.
Is the profit clean? Mostly yes, with one asterisk. There is no financing trick propping it up. Debt extinguishment gains were zero in both fiscal 2026 and 2025, and the $53.6 million net gain on debt refinancing that flattered fiscal 2024 did not recur. The $63.2 million net income survives $123.8 million of interest expense, offset by $36.4 million of interest income and a $10.1 million foreign exchange loss. That is a real operating profit carrying a real interest burden.
The asterisk is tax. Income tax was a $0.1 million benefit, an effective rate of negative 0.2%, so pre-tax income of $63.1 million passed through essentially untaxed. Peloton carries $1,699.1 million of gross deferred tax assets, including $1,084.8 million of net operating loss carryforwards, against which it maintains a $1,620.5 million valuation allowance. The reason given in the tax footnote is the sharpest line in the document: the company continues to conclude that realization is not more likely than not "due to the recent history of losses and management's expectation of continued tax losses." In the same 10-K that announces the first profit in six years, management's own accounting judgment is that it expects continued tax losses.
Cash is the genuinely strong part. Operating cash flow was $387.6 million, up from $333.0 million. Capital expenditures were just $9.9 million, four tenths of one percent of revenue, producing the filing's own Free Cash Flow measure of $377.6 million, versus $323.7 million last year and negative $85.8 million in fiscal 2024. Adjusted EBITDA was $468.2 million against $3.5 million two years ago. Free cash flow is 6.0 times net income, because $198.6 million of stock-based compensation, $57.2 million of depreciation and amortization, $49.8 million of non-cash lease expense and $34.6 million of impairment all sit between the two. That stock compensation figure is 52.6% of free cash flow, which is the honest discount to apply before calling this a cash machine.
The balance sheet is still repairing. Cash and equivalents were $1,206.6 million against $1,330.0 million of total debt, so net debt is only $123.4 million. Peloton repaid the remaining $199.0 million of its 0.00% 2026 convertible notes at maturity and cut total debt by $209.0 million. But stockholders' equity remains negative $139.7 million, improved from negative $413.8 million, and the accumulated deficit stands at $5,539.4 million. This year's $63.2 million profit is 1.1% of what the company has lost. The remaining debt is a $980.0 million term loan maturing May 2029 and $350.0 million of 5.50% notes due December 2029: the $1.0 billion of zero-coupon convertibles issued in 2021 has been replaced with paper that costs real money, and effectively all of it comes due in 2029.
Valuation: what it is worth as a normal business
Peloton closed at $5.53 on August 7, 2026, for a market capitalization of about $2.42 billion, within a 52-week range of $3.65 to $9.20 (source: market data via web search, not the filing). Adding $123.4 million of net debt gives an enterprise value near $2.54 billion. That is roughly 1.0 times sales, 5.4 times Adjusted EBITDA, 6.7 times Free Cash Flow, and about 39.5 times diluted earnings of $0.14.
The gap between 6.7 times cash flow and 39.5 times earnings is the entire valuation debate, and it is almost exactly the size of the stock compensation line. So the scenario table below is built on free cash flow after charging stock compensation as a real cost, with a single perpetuity on steady-state cash flow, and the fourth row shows what happens if you do not charge it.
| Scenario | Steady-state FCF after stock comp | WACC | Terminal growth | Implied value per share |
|---|---|---|---|---|
| Bear: churn keeps rising, price power exhausted | $100M | 12% | 0% | ~$1.60 |
| Base: subscriber decline slows, revenue roughly flat | $180M | 11% | 0% | ~$3.50 |
| Bull: base stabilizes, pricing holds, international scales | $260M | 10% | 1.5% | ~$6.70 |
| Base case ignoring stock compensation entirely | $377.6M | 11% | 0% | ~$7.60 |
Implied value under stated assumptions. Not a price target and not investment advice. Read across the rows: at $5.53 the market is paying above the base case that treats stock compensation as a cost and below the base case that ignores it. The single most important judgment an investor makes here is not about exercise bikes. It is whether $198.6 million of annual share issuance is a cost to owners.
Risks
The core risk is arithmetic. A price increase can hold subscription revenue flat for one year against a base shrinking 8.8%; it cannot do so indefinitely, and churn moved the wrong way to 1.7%. If the subscriber decline does not slow, the pricing lever has to be pulled again into an already-churning base.
The filing's own risk factor is unusually direct: "Although we reported net income in fiscal year 2026, we have incurred significant operating losses in prior periods and may not be able to sustain profitability on a quarterly or annual basis." Beyond that, hardware is manufactured in Taiwan, China and Thailand and the tariff position is genuinely unsettled: the Supreme Court invalidated IEEPA tariffs on February 20, 2026 and Peloton has filed a refund claim it says it cannot assure, Section 232 steel and aluminum tariffs were removed from fitness equipment on April 6, 2026, and the company remains subject to Section 122 tariffs of 10%. Product safety remains live, with the November 2025 Bike+ seat post recall costing $13.5 million this year. Accrued legal contingencies rose $23.8 million, and the 2023 securities class action, dismissed with prejudice on March 31, 2026, is now on appeal to the Second Circuit. Guaranteed music royalty minimums total $105.2 million, with $48.0 million due in fiscal 2027.
The Bottom Line
Peloton is now a smaller, profitable, cash-generative subscription company with a low-margin hardware division attached and a 2029 debt wall. "Smaller and profitable" is the accurate description; "turnaround" is not, because nothing turned around except the cost base. The company earned $63.2 million by cutting $178.5 million of operating expense and raising prices on a shrinking membership, and its own tax footnote says it expects continued tax losses.
What to watch is a single number: ending Paid Connected Fitness Subscriptions. Free cash flow of $377.6 million funds a lot of patience, and net debt of $123.4 million is not a solvency problem before 2029. But every dollar of this profit was bought with cost discipline and price, and both of those levers have a floor. The next leg has to come from the member count, and the member count has fallen 14.2% in two years.
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This is not investment advice. No price targets. All figures from Peloton's FY2026 Form 10-K filed 2026-08-06, except share price and market capitalization, which are from web market data as of 2026-08-07.