PTON: Major Product Overhaul And AI Integration Will Drive User Experience Forward

Key Takeaways

• Expanding into holistic wellness, commercial partnerships, and new accessibility initiatives aims to broaden Peloton's audience and diversify revenue streams.
  
• Focus on operational efficiencies, cost reduction, and asset-light strategies is expected to improve margins and support long-term growth.
  
• Declining demand, increased competition, and macroeconomic pressures threaten revenue growth, margin expansion, and sustained profitability, raising doubts about Peloton's long-term financial outlook.

Catalysts

Provides fitness and wellness products and services in North America and internationally.

• Peloton is leveraging advanced technologies-including AI-powered personalized coaching and human-driven community features-to broaden its offerings from cardio into holistic wellness (strength, sleep, stress, nutrition), which aligns with growing global health consciousness and should support future subscription revenue growth and higher engagement/churn reduction.
  
• The company is investing in new, lower-cost accessibility initiatives (secondary market "Repowered" platform, student/military/first responder discounts), and expanding tiered digital offerings like Strength+, targeting broader demographics and making the premium Peloton ecosystem available to a wider customer base, potentially driving both hardware and digital subscriber growth over time.
  
• Expansion into commercial fitness (integrating Precor and Peloton for Business, new international markets and hotel/retail partnerships) positions Peloton to capture the broader shift toward connected, omni-channel/hybrid fitness experiences while diversifying revenue streams beyond consumer at-home, potentially supporting topline growth and margin improvement via scale.
  
• Ongoing operational improvements-including cost reduction efforts, optimizing indirect spend, and a strategic shift toward higher-margin, asset-light models-are expected to drive continued gross and net margin expansion, as reflected in recent and forecasted improvements in adjusted EBITDA and free cash flow.
  
• The long-term proliferation of connected devices and IoT, coupled with increased remote/hybrid work, creates continued tailwinds for at-home and digitally connected fitness solutions, enhancing Peloton's total addressable market and supporting a return to sustainable revenue and earnings growth if the company executes effectively.

Peloton Interactive Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Peloton Interactive's revenue will decrease by 0.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from -4.8% today to 4.5% in 3 years time.
• Analysts expect earnings to reach $113.2 million (and earnings per share of $0.23) by about September 2028, up from $-118.9 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $194.3 million in earnings, and the most bearish expecting $-55 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 55.1x on those 2028 earnings, up from -26.1x today. This future PE is greater than the current PE for the US Leisure industry at 23.9x.
• Analysts expect the number of shares outstanding to grow by 6.9% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.39%, as per the Simply Wall St company report.

Peloton Interactive Future Earnings Per Share Growth

Risks

• Declining hardware sales and subscriptions, as indicated by consecutive year-over-year decreases in Paid Connected Fitness subscriptions (Q4 subscriptions down 6% YoY) and guidance forecasting further declines in both hardware unit sales and subscriptions for Q1 and the full fiscal year, suggest category saturation and lower demand-posing risks to long-term revenue growth and top-line stability.
  
• Increased competition from both low-cost/free digital fitness providers and major tech/hardware entrants, combined with ongoing consumer demand for in-person or hybrid experiences, may further erode Peloton's pricing power, customer loyalty, and subscription revenue, negatively impacting gross margins and net earnings.
  
• Persistent reliance on price adjustments, promotional activities, and broadening value propositions (e.g., wellness expansion, tiering, secondary market growth) rather than clear evidence of organic subscription/member growth indicates difficulty in driving new customer acquisition and retention, threatening sustained revenue and margin expansion.
  
• Macroeconomic headwinds-including discretionary spending constraints from inflation, higher interest rates, and exposure to evolving tariffs on imported equipment-introduce volatility and potential downside to consumer demand for premium fitness equipment and subscriptions, adversely affecting free cash flow and net margins.
  
• Challenges in cost reduction sustainability (after harvesting low-hanging fruit from past restructurings), ongoing restructuring costs, and high stock-based compensation further constrain operating leverage and margin expansion-raising concerns about the company's ability to maintain improved profitability and earnings trajectory over the long term.

Valuation

• The analysts have a consensus price target of $9.841 for Peloton Interactive based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $20.0, and the most bearish reporting a price target of just $5.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $2.5 billion, earnings will come to $113.2 million, and it would be trading on a PE ratio of 55.1x, assuming you use a discount rate of 8.4%.
• Given the current share price of $7.6, the analyst price target of $9.84 is 22.8% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.