Peloton Posts First Profitable Year, Guides to Revenue Decline
Peloton Interactive swung to $63.2 million in full-year net income even as it guided fiscal 2027 revenue to fall as much as 3.9%.
Peloton Interactive (PTON), the connected-fitness equipment and subscription company, closed fiscal 2026 with its first full year of positive GAAP net income, reporting $63.2 million in profit and $160.7 million in operating income, a reversal from fiscal 2025's net loss of $118.9 million and operating loss of $36.2 million.
The turnaround was funded largely by cost discipline rather than growth. Full-year revenue of $2.446 billion came in essentially flat versus fiscal 2025's $2.4908 billion, though it landed $6 million above the raised guidance range Peloton set in the third quarter. Restructuring expense fell to $17.9 million for the year from $33.8 million in fiscal 2025, and supplier settlements that cost $23.5 million a year earlier dropped to zero, reflecting the substantial completion of the company's 2025 restructuring plan.
Fourth-quarter revenue of $607.7 million was flat year-over-year, decelerating from 1% growth in the third quarter and extending a slowdown from the decline Peloton posted in the first quarter of the fiscal year. Ending paid Connected Fitness subscriptions fell to 2.553 million, down 8.8% to 9% year-over-year and 4% sequentially from 2.662 million in the third quarter, continuing a decline from 2.800 million a year earlier. Average net monthly subscription churn climbed to 2.2% in the fourth quarter, up 100 basis points sequentially from 1.2% and up 40 basis points from a year earlier.
Gross margin told a different story. Total gross margin expanded to 56.7% in the fourth quarter, up 260 basis points year-over-year and up 480 basis points from the third quarter's 51.9%, which had itself missed guidance by 210 basis points because of promotional activity. The gains were uneven across segments: subscription gross margin rose to 73.6%, up 170 basis points sequentially, while Connected Fitness Products gross margin compressed to 13.4% from 17.3% a year earlier even as it improved 210 basis points from the third quarter. Connected Fitness Products revenue fell 14% year-over-year to $171.1 million, while subscription revenue rose 7% to $436.6 million, extending the mix shift toward the higher-margin subscription business.
Fourth-quarter adjusted EBITDA of $142.3 million grew just 2% year-over-year, a sharp deceleration from the third quarter's 41% growth, due to a $23.8 million nonrecurring accrued legal contingency tied to patent litigation recognized in the quarter. Full-year adjusted EBITDA of $468.2 million still rose 16% to the high end of the $470 million to $480 million range Peloton had set in the third quarter.
Peloton also continued cutting debt. Net debt fell to $93 million at quarter-end, down 80% year-over-year and an incremental $367 million reduction from the $173 million reported in the third quarter. Free cash flow for the quarter was $88.7 million, down from $150.5 million in the third quarter, though full-year free cash flow of $377.6 million rose 17% and beat the roughly $350 million outlook Peloton had raised in the third quarter.
For fiscal 2027, Peloton guides to revenue of $2.3 billion to $2.4 billion, a 3.9% decline at the midpoint from fiscal 2026's roughly flat result. First-quarter guidance implies revenue growth of just 0.8% at the midpoint, alongside an 8.7% sequential drop from the fourth quarter's $607.7 million and continued subscriber attrition to 2.455 million to 2.475 million, down 9.8% year-over-year. Gross margin guidance of about 54% and adjusted EBITDA guidance of $475 million to $525 million imply slower rates of improvement than fiscal 2026 delivered.
Peloton completed the acquisition of Skōp, a connected-Pilates company, and plans to double its microstore fleet in fiscal 2027, additions that did not appear in the prior quarter's release. The company also named Sid Thacker chief financial officer effective June 22 and Sarah Robb O'Hagan chief content and member development officer effective April 1, rounding out changes to its executive team since the third-quarter report.