Peloton Interactive (PTON -4.80%) went public in 2019 with a stock price of $29. By December 2020, it had more than quintupled to a record high of $163, as pandemic-related lockdowns and social restrictions triggered surging demand for the company's at-home exercise equipment.
But Peloton's sales have plummeted since social conditions returned to normal. The company even faced the prospect of bankruptcy a few years ago as its net losses ballooned to unsustainable levels. As a result, its stock price has plunged by 95% from its record high, and attempted recoveries have been very short-lived.
Peloton's management team continues to make changes to turn the company around, and some of them are bearing fruit. With that in mind, here's one reason Peloton stock might keep declining, and one reason it could bounce back.
Image source: Peloton Interactive.
The reason Peloton stock could keep sliding
Peloton's annual revenue peaked at $4 billion in fiscal 2021 (which ended on June 30 of that year). Around 78% of that figure was attributable to sales of equipment like its stationary bikes, treadmills, and rowing machines, while the other 22% came from subscriptions that customers bought to enhance their fitness journey.
But Peloton's revenue sank to $3.5 billion in fiscal 2022, and then to $2.8 billion in fiscal 2023, followed by another drop to $2.7 billion in fiscal 2024. For fiscal 2025 (which just ended on Monday, June 30), management's forecast suggests that revenue fell yet again, to under $2.5 billion.
PTON Revenue (Annual) data by YCharts.
The declines have been driven by shrinking equipment sales, so the composition of Peloton's revenue has changed dramatically over the last few years. Through the first three quarters of fiscal 2025, equipment sales accounted for just 33% of the company's total revenue, with subscriptions bringing in the other 67%. Management has tried to revive sales by tapping into third-party retailers like Amazon, Dick's Sporting Goods, and even Costco Wholesale, but it hasn't been enough to make up for the organic drop in demand.
Lower hardware sales have also affected the subscription business. Connected fitness subscribers are those who own Peloton's equipment and pay a monthly fee to access virtual classes and other benefits, so if the company isn't selling as many bikes, treadmills, and rowing machines, it simply can't attract as many paying members. There were 2.88 million connected fitness subscribers at the end of the fiscal 2025 third quarter (ended March 31), which was a 6% decline from the year-ago period.
Peloton tried to unlock a new market by creating a subscription service for fitness enthusiasts who don't own the company's equipment, which includes a mobile application where they can track their progress and even access step-by-step workout routines. Despite generating strong interest initially, this subscriber base is now steadily declining. There were 573,000 members at the end of the recent quarter, which was down 15% from the year-ago period.
Peloton's shrinking business is the primary reason for the sharp decline in its stock price, and it's likely to continue trending lower if management can't turn things around.
The reason Peloton stock could bounce back
Peloton's business was still set up for growth in fiscal 2022, meaning management was spending heavily on things like marketing and research and development. So, when the company's revenue declined during that year instead, its net loss soared by a staggering 1,390% compared to fiscal 2021. It came in at $2.8 billion on a GAAP (generally accepted accounting principles) basis.
Peloton's preferred measure of profitability is adjusted (non-GAAP) earnings before interest, taxes, depreciation, and amortization (EBITDA). It still lost $982 million on that basis during fiscal 2022. With just $1.2 billion in cash left on its balance sheet at the end of that year, the company couldn't afford to sustain losses of that size for much longer.
Management acted quickly to slash costs. By fiscal 2024, Peloton's annual operating expenses had been cut in half relative to their fiscal 2022 peak. The company still lost $552 million on a GAAP basis that year, but its adjusted EBITDA was actually in positive territory to the tune of $3.5 million.
Peloton delivered an even better result through the first three quarters of fiscal 2025. It lost $140.5 million on a GAAP basis, but its adjusted EBITDA soared to $263 million. These improving results have allowed the company to pay down some of its long-term debt, which is an important step toward securing its future. It might even give investors the confidence to start moving some money back into Peloton stock.
Therefore, if Peloton's bottom line continues trending in this positive direction, it could spark a recovery in its stock price.
Should you buy Peloton stock right now?
It can be tempting to buy a stock after a 95% decline because it might be perceived as cheap, and Peloton's valuation is certainly at rock-bottom at the moment. Its price-to-sales (P/S) ratio is just 1 -- in other words, its market capitalization is equal to about one year's worth of the company's revenue. It's a long way from its peak of around 20, which suggests that investors aren't feeling great about the prospects of a recovery.
PTON PS Ratio data by YCharts.
While it's great that Peloton's adjusted EBITDA is soaring, its growth is mostly coming from cost cuts, rather than from an increase in sales. Management will eventually run out of costs to cut, and if revenue hasn't started growing again by that point, the company's newfound profitability is likely to slip away.
Peloton needs to find a way to increase sales to drive revenue growth, without plunging the company's bottom line back into the red. It hasn't achieved this so far, and I think investors should consider avoiding the stock until it does. Simply put, if Peloton's revenue continues to shrink, then its recent adjusted EBITDA results are likely to be unsustainable over the long term.
