$0.97
$4.25
bear $0.97
base $2.47
bull $4.25
margin of safety $1.10
market price* $5.22
Peloton sells connected exercise equipment (Bike, Tread, and Precor-branded commercial products) and, far more importantly, monthly subscriptions to its classes and app. In fiscal 2026 (year ended June 30) subscriptions were $1,675.6M of $2,446.0M revenue (68.5%) and earned a 71.4% gross margin; hardware earned 11.7%. Roughly 87% of revenue is in the United States. What we measure. Owner earnings are operating cash flow, less the swing in working capital, less stock compensation, less capital spending. Fiscal 2026 works out to $137.3M, about $0.31 per share: operating cash flow $387.6M, minus $41.8M of working-capital inflow (mostly an $81.3M inventory drawdown, which cannot repeat at that size with only $135.4M of inventory left), minus $198.6M of stock compensation, minus $9.9M of capital spending. Stock compensation is treated as a real cost, so our figure is far below the company's reported free cash flow of $377.6M. Cash lease payments are left in, since rent is a genuine cost. Earlier years were deeply negative (fiscal 2024 about -$1.30 per share, fiscal 2025 about -$0.04), so 2026 is the first year the business has covered its costs on this basis. Why fiscal 2026 is the starting point. Restructuring plans in 2022, 2024 and 2025 reset the cost base; the 2025 plan was substantially complete by June 2026, and general and administrative expense fell $97.0M in fiscal 2026. Years before that describe a much larger, loss-making business, so we do not average them in. The weakness is that this rests on one year. The core problem is a shrinking customer base. Paid Connected Fitness subscriptions fell from 2.976M (2024) to 2.800M (2025) to 2.553M (2026), and monthly churn rose from 1.4% to 1.6% to 1.7%. Subscription revenue held flat (+$1.9M) only because prices rose in the quarter ended December 31, 2025. Total revenue is down 1.8%. We give no credit for growth: no new product, market or share gain is contracted or has a multi-year record behind it. Growth check. Owner earnings rose from -$15.5M to +$137.3M last year, which is a cost-cut recovery rather than a growth rate. For the first year of the base case we assume a 6% decline, below that recovery, because subscribers are falling faster (8.8%) than revenue and the price increase has already been taken. Base case, about $2.47 per share. Owner earnings of $137M decline 6% a year and keep declining at that pace indefinitely. Subscriber losses are the evidence; lower costs are already in the starting figure and are not assumed to repeat. Bear case, about $0.97 per share. Subscriber losses continue at least as fast as in fiscal 2026 (churn has risen two years running), the price increase is exhausted, and with hardware margins thin and costs largely fixed, owner earnings fall 20% a year. Debt sharpens this: about $980M of term loan (due May 2029) and $350M of 5.50% convertible notes (due December 2029) sit against $1,206.6M of cash, and interest paid was $122.2M in fiscal 2026. Refinancing a shrinking business in 2029 is the risk named here; it is not separately priced. Bull case, about $4.25 per share. The price increase, in place for only part of fiscal 2026, annualizes for about 8% higher owner earnings in fiscal 2027, after which they decline 2% a year, matching the recent pace of revenue decline. Content-related margin gains (subscription gross margin rose from 69.1% to 71.4%) continue. We do not credit a tariff refund following the February 20, 2026 Supreme Court decision, as the filing gives no amount. Accounting notes. Share count uses 436.2M diluted shares. Basic shares rose 8.9% in a year (390.0M to 424.7M), so ongoing dilution is a further drag. Net income plus non-cash items ties to operating cash flow within $0.1M in each of the last three years. Debt is not deducted from value, since interest is already paid out of the cash flow we measure. What would make this wrong: if churn and paid subscriptions stabilize, the base case is too low; if hardware and subscription declines steepen or lease and legal costs recur (fiscal 2026 included a $23.8M increase in accrued legal contingencies), even the bear case may be generous. The margin-of-safety price is set near the bear case, given a declining, indebted business with one year of positive owner earnings.