Peloton nudges holiday outlook above the Street, even as sales slip and margins tighten

What Peloton is signaling for the holidays

For the current quarter that runs through December, Peloton put revenue at $625 million to $650 million. The midpoint of $637.5 million edges past Wall Street's $635.6 million view, but still marks a 3% drop from last year's holiday period. Management also expects gross margin to land around 50% this quarter, down from 61.3% in Q1.

Adjusted Ebitda - a profit measure that strips out interest, taxes, depreciation and amortization - is pegged at $85 million to $100 million. The $92.5 million midpoint is above the $91 million analyst number and would be up 14% from a year ago even with lower revenue.

How Q1 set the table

Peloton's fiscal first quarter, which ended in September, brought in $559 million in revenue, a 2% gain and the third straight year-over-year increase, beating the $552 million consensus. Net income was $96 million, compared with $14 million in the same quarter a year earlier. Adjusted Ebitda rose 42% to $168 million, and free cash flow rose to $143 million, more than twice the prior level.

Subscription revenue reached $411 million, a 3% uptick, despite a smaller base. Paid connected fitness memberships at quarter end decreased 9% to 2.475 million. For Q2, Peloton expects that figure between 2.425 million and 2.445 million, with a 2.435 million midpoint that is slightly ahead of the 2.43 million estimate.

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Strategy, leadership and the stock move

Peloton has been remaking itself after the pandemic boom faded, contending with leadership turnover and excess inventory. With Peter Stern taking over as CEO in 2025, the focus has shifted to AI-driven software, refreshed hardware and new partnerships. Treadmills are front and center in that push, including new models such as a lower priced foldable version. CFO Sid Thacker summed up the tone: "We're in the strongest position we've ever been in," adding "the business is performing as we expected," a "massive change from a few years ago." On Q1 specifically, he said, "This was a strong Q1 across every key metric that we have," and on the holiday read-through for treadmills, it is "still too early to tell," though "we're encouraged by how it's been received."

The market's first take was volatile. Shares at one point were up 9.5% to $5.98 before turning negative, and by 9:56 a.m. in New York they were lower by 1%. For the full year, Peloton reaffirmed revenue of $2.3 billion to $2.4 billion, a 4% decline at the midpoint, and maintained adjusted Ebitda guidance in a $475 million to $525 million range, an expected 7% increase, while indicating it expects no less than $350 million in free cash flow.

Why it matters for your portfolio

This is a classic mix of leaner top line and tighter margins paired with better profitability math. Guidance shows Peloton squeezing more earnings out of each dollar even as hardware demand stays choppy. Watch subscription trends - the base is shrinking, but price and mix lifted subscription revenue 3% in Q1 - and keep an eye on gross margin holding near 50% through the holiday quarter. The bottom line: if the treadmill refresh and software bets keep nudging Ebitda higher and free cash stays on track for at least $350 million, the turnaround story has more room to run even without big revenue growth.

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