Peloton Interactive's stock (NASDAQ: PTON) saw a recent increase in its stock price, closing higher on April 29, 2025, after Truist Financial (NYSE: TFC) upgraded the company's rating.
[content-module:CompanyOverview|NASDAQ: PTON]This positive development offers a glimmer of hope against the backdrop of the previous challenges of post-pandemic struggles and significant stock drops.
Truist's upgrade emphasizes Peloton's improving financial health, particularly its advancement in profitability and cost control, suggesting a possible turning point.
Nevertheless, ongoing difficulties in boosting revenue growth and considerable market doubt warrant a cautiously optimistic outlook as the company works through its intricate recovery strategy.
Peloton's Path to $11
Truist Financial’s analyst upgraded Peloton's rating from Hold to Buy, with an $11 price target, indicating substantial potential growth from late April trading values. This upgrade is based on confidence in CEO Peter Stern, who assumed leadership on January 1, 2025, and his commitment to achieving the company's Fiscal Year 2025 financial objectives.
These targets reflect a focus on financial discipline. Peloton projects FY25 revenue of $2.43 billion to $2.48 billion (an approximate 9% year-over-year decrease at the midpoint), alongside an Adjusted EBITDA of $300 million to $350 million and positive free cash flow (FCF) of at least $200 million.
Truist believes Peloton's significant cost reductions have successfully "right-sized" operating expenses, establishing a base for enhanced profitability and anticipating consistent annual FCF generation of at least $210 million for FY25 and FY26. Additionally, Truist noted Peloton's progress in strengthening its balance sheet and improving leverage, which provides management with increased flexibility for strategic growth investments while preserving positive cash flow.
Peloton's Improving Vitals
Peloton’s financial reset is showing real traction. In Q2 FY25, the company delivered its fourth consecutive quarter of positive free cash flow, generating $106 million—a sharp rebound from a $37 million loss in the same quarter last year. On the heels of that momentum, Peloton raised its full-year free cash flow target to at least $200 million.
Adjusted EBITDA also turned a corner, reaching $58.4 million, up from a loss of $81.7 million a year earlier. That performance drove management to raise its FY25 guidance to $300 million–$350 million.
These gains stem from decisive action: a May 2024 restructuring plan aimed at over $200 million in annual savings by year-end. In Q2, operating expenses fell 25% year-over-year, led by a 34% reduction in sales and marketing and an 18% drop in general and administrative costs.
Margins are trending upward. While total gross margin came in at 47.2%, the subscription business maintained a strong 67.9%, and Connected Fitness Products’ gross margin rose to 12.9%, up from 4.3% last year, driven by pricing improvements, operational efficiencies, and a stronger product mix. The company is now targeting a 50% gross margin for the full year.
The balance sheet is healthier, too. Net debt dropped 30% year-over-year to $670.3 million, supported by a successful mid-2024 debt refinancing that improved financial flexibility.
Peloton's Focus Shifts to Growth
With a firmer financial foundation in place, Peloton is shifting its focus toward reigniting revenue growth, though challenges remain. In Q2 FY25, revenue declined 9% year-over-year, reflecting both broader market pressures and internal pricing adjustments. Still, the company’s leaner cost structure provides a more stable base for recovery, and full-year guidance suggests similar trends as Peloton continues to recalibrate for long-term growth.
Subscriber trends offer a mixed picture. Paid Connected Fitness Subscriptions came in slightly above expectations at 2.88 million, but that marked a sequential drop of 21,000 and a 4% decline from a year earlier. On the bright side, churn improved to 1.4%, showing early signs that retention efforts are working, though the rate remains slightly elevated versus last year.
Meanwhile, Paid App subscriptions dropped 19% year-over-year to 580,000, the result of a deliberate pullback in App-specific marketing as Peloton works to boost overall efficiency.
Investor sentiment is still split. As of mid-April 2025, roughly 69 million shares—or 17.93% of the float—were sold short, underscoring lingering skepticism. But high short interest can cut both ways: while it signals caution, it also sets the stage for potential volatility or short-covering rallies if Peloton’s momentum continues.
[content-module:TradingView|NASDAQ: PTON]Peloton's Next Phase: Execution Is Key
Peloton Interactive stands at a critical stage in its corporate narrative. The company has successfully executed a difficult operational pivot, demonstrably improving its cost structure, achieving consistent positive free cash flow, and boosting profitability metrics.
Recent analyst upgrades like Truist's recognize these accomplishments. Under new leadership, including CEO Peter Stern and COO Charles Kirol, the focus has clearly shifted from growth-at-all-costs to building a sustainable financial foundation.
However, the journey is far from complete. The market awaits convincing evidence that this newfound stability can serve as a launchpad for renewed, sustainable top-line growth. While confidence is placed in the new executive team, concrete details on specific new growth strategies beyond refining existing channels and products have yet to emerge fully.
Until subscriber and revenue trends reverse their negative trajectory, market skepticism, amplified by the high short interest, is likely to persist. Cautious optimism exists for Peloton's path to profitability, but investors will watch future performance to see if the company can manage expenses and effectively compete and grow its user base within a demanding sector.
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