Peloton leans on AI and subscriptions as hardware sales slide

Peloton‘s fitness business shows resilience amid economic headwinds, as the company downplays tariff impacts while emphasizing its subscription-based revenue model. Despite hardware sales falling 27 percent and subscription revenue dropping 4 percent year-over-year, Peloton remains confident about its market position and is leveraging AI to improve customer experience while exploring pricing adjustments to address macroeconomic pressures.

The big picture: Peloton emphasized its identity as “predominantly a subscription business” during its Q3 2025 earnings call, suggesting fitness spending tends to remain stable even during economic downturns.

• CFO Liz Coddington pointed to data showing fitness spending continued to grow during the 2008-2009 GDP decline, indicating “the fitness industry has some resilience to external economic factors.”
• CEO Peter Stern indicated the company is evaluating pricing strategies in response to tariffs, noting it’s been nearly three years since subscription prices were increased.

Tariff impact: Peloton disclosed modest financial effects from current and potential tariffs on its hardware and apparel products.

• The company’s hardware faces 25 percent tariffs due to aluminum components, while its apparel line is subject to pending China tariffs.
• Peloton forecasts approximately $5 million in free cash flow headwinds for Q4 2025 resulting from these tariffs.

Hardware strategy: The company is offsetting higher-priced equipment with financing options and operational improvements.

• Coddington highlighted zero percent interest financing, a bike rental program, and lower-priced refurbished models as alternatives for cost-conscious consumers.
• Peloton is piloting “dedicated vans stocked with Peloton spare parts” to improve repair services and boost customer satisfaction.

AI implementation: Stern devoted significant attention to how artificial intelligence is enhancing Peloton’s operations and customer experience.

• Customer support staff now use AI agents for call note-taking, while AI-powered translations have enabled subtitling for 3,300 classes in Q3, with current capacity at roughly 100 classes daily.
• The company has deployed Google Gemini to most team members and launched AI-powered personalized fitness plans, which have already been adopted by half a million users.

Financial outlook: Despite declining hardware and subscription revenues, Peloton slightly raised its financial guidance.

• The company increased its outlook from $247.6 million to $247.7 million, showing modest confidence despite overall losses.
• New COO Charles Kirol has been appointed with a mandate focused on supply chain logistics and cost management.