Is It Time to Buy Peloton Stock? Here's the Good News and the Bad News.

Peloton Interactive (NASDAQ: PTON) stock peaked at $163 in 2021, which represented an eye-popping return of 460% for investors who bought it at the time of its initial public offering (IPO) the year before. But the stock has since lost 95% of its peak value, and a recovery appears uncertain.

Consumers were buying at-home exercise equipment hand over fist at the height of the COVID-19 pandemic, so they could stay fit during the lockdowns and social restrictions. But Peloton failed to evolve once that demand cooled off, which sent its revenue plunging and its losses soaring.

There was even a period of time when Peloton's survival was in question, before management made a series of changes. The company's future is still uncertain, but there is now some good news to go along with its ongoing struggles. Here's what investors need to know before deciding whether to buy the stock.

Image source: Peloton.

First, the bad news

Peloton generates revenue in two ways. First, it sells exercise equipment like its stationary bikes, treadmills, and rowing machines. Second, it offers a subscription product for customers who want to access exclusive classes to get the most out of their Peloton equipment, and also a separate subscription product for non-equipment owners who want to track their fitness journeys.

Peloton's annual revenue peaked at $4 billion during its fiscal year 2021 (ended June 30, 2021), and it has declined every year since. It fell to $3.5 billion in fiscal 2022, then $2.8 billion in fiscal 2023, and $2.7 billion in fiscal 2024. Management's fiscal 2025 forecast suggests it will decline even further in the current year, to just under $2.5 billion.

The composition of Peloton's revenue has changed dramatically over the last few years. In fiscal 2021, equipment sales represented 78% of the company's total revenue, with subscriptions accounting for the other 22%. But equipment sales now make up just 33% of total revenue, with subscriptions representing the majority.

Demand has declined dramatically for Peloton's flagship exercise machines since the height of the pandemic. The company has pulled several different levers to resurrect it, but they don't appear to be working. It closed many of its stores and shifted sales to third-party retailers like Amazon and Dick's Sporting Goods to reach more customers, and it even launched financing and rental options to reduce the entry cost for lower-income consumers.

Connected fitness subscriptions are directly tied to equipment sales, so if Peloton sells fewer bikes, treadmills, and rowing machines, it also becomes harder to grow its subscriber base. In fact, it shrank by 6% over the past year, to 2.88 million members.

Shrinking businesses can destroy shareholder value over time, so investors typically avoid buying into them (hence the 95% drop in Peloton's share price over the last few years).

Here's the good news

In fiscal 2022 -- the first year Peloton's revenue declined -- management still had its cost structure geared toward growth. In other words, it was spending more money with less money coming in. As a result, the company wound up generating a staggering generally accepted accounting principles (GAAP) net loss of $2.8 billion that year.

That was completely unsustainable, and Peloton faced the possibility of bankruptcy if it couldn't reduce its losses because its cash balance was quickly evaporating.

Since then, management has slashed costs and secured financing to protect Peloton's future. In fiscal 2024, the company's operating expenses were down by almost half compared to their fiscal 2022 level, led by cuts to sales and marketing. The downtrend continued in the first three quarters of fiscal 2025, with operating expenses cut by a further 26% year over year.

Peloton is still in the red on a GAAP basis, generating a net loss of $140 million in fiscal 2025 to date. However, after stripping out one-off and non-cash expenses like stock-based compensation, the company has actually generated positive adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $70.3 million during the period. This is management's preferred measure of profitability, because it's a better indicator of how much real money the business is generating.

This is good news in the sense that Peloton is no longer at risk of going out of business in the near future. But there is no telling where the bottom is in terms of the company's shrinking revenue. Management will eventually run out of costs to cut, which could put the business in a precarious position yet again at some point.

Is Peloton stock a buy?

Peloton has $914 million in cash on its balance sheet, and now that it's profitable (on a non-GAAP EBITDA basis), it has an opportunity to start investing in growth again. However, it also has $947 million in long-term debt, so it can't get too adventurous and start burning cash at the bottom line.

Earlier, I said investors typically avoid buying into shrinking businesses. If Peloton can't find a way to reignite its sales growth in a sustainable way, then it's probably going to face mounting losses again in the future. That creates a significant risk for investors who buy the stock today, even though it's already down by 95% from its record high.

This is one of those situations where a beaten-down stock doesn't necessarily equal a cheap stock, so investors might want to stay away until Peloton proves it can sustainably grow its sales.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon and Peloton Interactive. The Motley Fool has a disclosure policy.