Peloton Interactive (PTON) shares surged 10.23% on Friday to close at $5.71, following the announcement by S&P Dow Jones Indices that the connected-fitness company will be added to the S&P SmallCap 600 index before trading begins on May 27. The move triggered significant buying activity from index funds that track the benchmark, sending trading volume to 34.9 million shares—more than double the 50-day average of 13.7 million.
The index addition comes as Peloton demonstrates improved financial performance. In its fiscal third-quarter report on May 7, the company posted revenue of $630.9 million, up 1% year-over-year, along with net income of $26.4 million and adjusted EBITDA of $126.2 million. Adjusted EBITDA, a widely used profitability metric, reflects earnings before interest, taxes, depreciation, and amortization, adjusted for certain items.
CEO Peter Stern highlighted the company's progress in strengthening its financial foundation. "We are no longer operating defensively," Stern told analysts on the earnings call, emphasizing that Peloton now has "profound strategic optionality." This could include refinancing debt, investing in growth initiatives, or returning capital to shareholders once a permanent CFO is appointed.
Interim CFO Saqib Baig reported that free cash flow reached $151 million for the quarter, a 59% increase from the prior year. Peloton is guiding for approximately $350 million in free cash flow for fiscal 2026, with revenue expected in the range of $2.42 billion to $2.44 billion. The company also reduced its net debt by 70% year-over-year to $173 million.
Despite the positive momentum, Peloton faces challenges. Gross subscriber additions are expected to decline year-over-year, and the company projects ending the fiscal year with 2.55 million to 2.57 million paid connected-fitness subscriptions, down from 2.662 million at the end of the third quarter. Tariffs are also expected to reduce full-year free cash flow by about $30 million.
Peloton is working to diversify beyond its core bike and treadmill business. A recent licensing deal with Spotify places over 1,400 Peloton classes in front of Spotify Premium subscribers, while its commercial business grew 14% in the quarter. These initiatives aim to expand the company's revenue streams and subscriber base.
Even after Friday's surge, Peloton shares remain 37.93% below their 52-week high of $9.20. The index inclusion provides a temporary boost, but the company's long-term trajectory depends on its ability to sustain subscriber growth and improve margins. U.S. markets will be closed on Monday, May 25, for Memorial Day, with attention turning to Tuesday and the index rebalancing on Wednesday.
