Peloton Interactive (PTON -12.35%) went public at $29 per share in 2019, and by December 2020, it had soared by 462% to a record high of around $163. Pandemic-necessitated lockdowns and social-distancing efforts led to explosive demand for the company's connected exercise equipment, which sent its revenue soaring.
However, the boom was short-lived. Sales cratered after widespread inoculations with COVID vaccines allowed social conditions to gradually start returning to normal in 2022. The company's revenues still haven't recovered, but Peloton is now leaning into artificial intelligence (AI) to give its exercise equipment more capabilities, in the hope that this will attract new customers.
Peloton stock is currently down 94% from its 2020 peak. Could the company's pivot into AI be the spark that ignites a recovery?
Image source: Peloton Interactive.
Refreshing its entire lineup
Peloton has two primary sources of revenue. First, it sells exercise equipment -- stationary bikes, treadmills, and rowing machines -- and second, it sells subscriptions that include digital classes and other tools designed to help people get more out of their workouts.
The company's total revenue peaked at $4 billion in its fiscal 2021, but it has since declined for four consecutive years, coming in at $2.5 billion in its fiscal 2025 (which ended June 30). Management's guidance suggests revenue will decline again to just $2.4 billion in fiscal 2026.
Most of the slump came from plunging equipment sales. After peaking at $3.1 billion in fiscal 2021, they came in at just $817 million in fiscal 2025. Management tried several things to reverse the decline. It introduced payment plans to make its offerings more accessible to less prosperous consumers, and it tapped into third-party sales channels like Amazon and Dick's Sporting Goods, to no avail.
However, Peloton noticed a growing number of its customers also enjoy strength training, yoga, Pilates, and other exercises, which could spell opportunity. On Oct. 1, the company launched a new lineup of bikes, treadmills, and rowing machines called the Cross Training Series, featuring an advanced AI and computer-vision system called Peloton IQ.
When users stand in front of this equipment during strength training exercises, Peloton IQ will serve as a digital personal trainer, counting their repetitions, correcting their form, and even suggesting appropriate weight levels. Peloton IQ also includes a revolutionary workout generator that can craft custom exercise plans based on the goals of each individual user.
But there's a catch: The new equipment comes at much higher prices than prior models. The Cross Training Bike+, for example, sells for $2,695. That probably won't help Peloton broaden its customer base.
Peloton's bottom line has significantly improved
Peloton thought its sales would continue to grow after fiscal 2021, and it expanded its production capacities accordingly. So when sales unexpectedly shrank in fiscal 2022, it was left with a staggering $2.8 billion loss at the bottom line. The prospect of bankruptcy was real, as it had limited cash left in the bank, so management had to slash costs quickly.
Peloton's operating costs were 62% lower in fiscal 2025 than they were in fiscal 2022, helping the company narrow its net loss to just $118 million. When excluding one-off and non-cash expenses, Peloton was actually profitable in fiscal 2025, generating $403 million in adjusted (non-GAAP) EBITDA.
Achieving profitability was essential to ensure the company's survival, but it won't be sustainable unless its revenue starts growing again, because management will eventually run out of costs to cut. Plus, pulling too much money out of areas like marketing or research and development will make it even harder for Peloton to attract new customers and boost sales.
Investing in a shrinking business is rarely a good idea
As mentioned earlier, Peloton stock is down 94% from its 2020 record high. Shrinking businesses tend to destroy shareholder value over the long term, so the stock is likely to trend lower until sales recover. There is no guarantee the new Cross Training Series equipment is the solution, especially because of its higher prices.
Therefore, I think investors should adopt a wait-and-see approach to this stock. Peloton needs to prove it can sustainably expand its business before its stock will be a viable investment, in my opinion. Taking a chance on the stock right now leaves investors exposed to the possibility of significant losses if the company's new strategy falls flat.
