We came across a bullish thesis on Peloton Interactive, Inc. (PTON) on Substack by Open Insights. In this article, we will summarize the bulls’ thesis on PTON. Peloton Interactive, Inc. (PTON)’s share was trading at $7.03 as of March 3rd.
A person working out at home with a home gym setup, with the fitness digital platform visible in the background.
Peloton (PTON) delivered a strong Q2 performance, beating expectations across key financial metrics, particularly in profitability, with Adjusted EBITDA and Free Cash Flow (FCF) exceeding projections. The company had been conservative with its guidance, setting up a scenario where it could easily surpass expectations, and the market reacted positively, sending shares up 12%. Updated fiscal year 2025 numbers were all revised higher, including subscriber counts, revenue, gross margin, and Adjusted EBITDA, reinforcing the company’s improving fundamentals. However, the updated guidance implies an improbable subscriber drop-off in Q4, which conflicts with both historical trends and revenue projections, suggesting another likely beat-and-raise scenario ahead.
The company’s restructuring efforts continue to contribute to expense reduction, particularly through headcount cuts and operational efficiencies. The $200M cost restructuring announced in 2024 is already flowing through financials, with further savings expected in the second half of 2025. Marketing expenses are also projected to decline, potentially settling around 20% of revenue, down from 24.4% in 2024, further improving margins. However, as Peloton sells through existing inventory, a short-term boost to FCF will eventually turn into a headwind in 2026 when inventory restocking becomes necessary. Despite this, Peloton is now a cash-generating machine, with Adjusted EBITDA for FY 2025 guided to $325M and FCF to $200M, though internal estimates suggest these figures could be even higher, reaching $380M-$400M in EBITDA and $240M-$260M in FCF.
For Peloton to reach its fair value of $10-$15 per share from its current ~$8.30 price, further expense reductions and revenue growth are crucial. The company’s general and administrative expenses remain high due to fixed infrastructure costs, particularly long-term office lease obligations. While some retail closures will help lower lease costs, substantial reductions will take time. Meanwhile, the company needs to focus on revenue growth through subscriber retention and expansion. Raising prices by even $5 per month could add $168M in pure profit, significantly boosting cash flow, but the timing needs to be strategic. Increasing customer acquisition is also critical, and CEO Peter Stern is expected to outline a detailed growth plan in the coming months.
Peloton’s churn rate remains remarkably low at 1.2%, significantly better than Netflix’s 2.3%, suggesting strong subscriber loyalty. If churn declines further, it would reinforce the company’s pricing power and competitive advantage. With improving financials, cost efficiencies, and potential for further revenue growth, Peloton is positioned for strong upside, with multiple catalysts that could drive substantial stock appreciation.
Peloton Interactive, Inc. (PTON) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 49 hedge fund portfolios held PTON at the end of the fourth quarter which was 35 in the previous quarter. While we acknowledge the risk and potential of PTON as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than PTON but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.