Peloton Gets a Lift From Higher Prices as Revenue Tops Forecasts

CNBC, Quartz, Bloomberg, and the Wall Street Journal contributed to this report.

Peloton finally had a quarter that looked a little more like progress and a little less like cleanup.

The fitness company said that fiscal third-quarter revenue came in above Wall Street’s expectations, helped by stronger equipment sales, better-than-expected subscription revenue and a healthier bottom line. Earnings per share missed by a penny, but investors seemed more interested in the bigger picture: Peloton is still finding ways to stabilize the business.

Revenue reached $630.9 million, up just over 1% from a year earlier and better than analysts had expected. Peloton also swung to a profit of $26.4 million, or 6 cents a share, from a loss in the same period last year.

The real boost came from subscriptions. Peloton raised prices earlier this year, and CEO Peter Stern said the company sees that move as a fair trade for the value it now offers members. In plain English: prices went up, but so did what customers get.

“We had added a tremendous amount of value over the succeeding three or four years since we previously made any change in our subscription prices,” Stern told CNBC.

That pricing move seems to be doing some work. Subscription revenue rose 2% to $428 million, while connected fitness subscription revenue came in stronger than expected at $202.9 million. Equipment sales also outperformed.

Peloton is still not out of the woods. Paid connected fitness subscribers slipped to 2.66 million from 2.88 million a year ago, which shows the company still has a retention problem. But cash flow improved sharply, and the company is making a more convincing case that the turnaround is real.

Free cash flow jumped nearly 60% year over year to $150.5 million. Adjusted EBITDA rose 41% to $126.2 million. Net debt also dropped sharply.

Peloton nudged up the bottom end of its full-year revenue forecast to $2.42 billion to $2.44 billion and kept its profit outlook unchanged. That suggests management sees enough momentum to sound a bit more confident, even if the company is still rebuilding.

The company is also trying to widen the funnel. A new content deal with Spotify puts more than 1,400 Peloton classes in front of Spotify Premium users, and Peloton recently rolled out commercial versions of its Bike and Tread for gyms and high-traffic spaces. Those moves are still early, but they point to a company that is trying to stretch beyond the home workout crowd.

For now, the formula is pretty clear: raise prices carefully, keep pushing subscriptions, and squeeze more value out of the brand. It is not glamorous. It is working a little better than before.