Morgan Stanley has turned bearish on Peloton, the company that became a household name during the pandemic for its internet-connected exercise bikes and treadmills. In a research note, the bank downgraded the stock to underweight and slashed its price target to $4.50, reflecting a belief that the company's core subscription business will keep losing ground.
The central issue, according to Morgan Stanley, is that Peloton's connected-fitness subscriptions are likely to keep falling. The bank forecasts a decline of about 6% per year from fiscal 2026 through fiscal 2029. That contrasts with the broader market's expectation that the subscriber base will stabilize within a few years. For everyday investors, this is a significant divergence in outlook—it suggests the bank sees a longer and deeper slump than many others are pricing in.
Why subscriptions matter so much
Peloton's business model relies on two main revenue streams: selling the hardware—the bikes and treads—and charging a monthly subscription for access to live and on-demand classes. The subscription, which costs roughly $50 a month, is the profit engine. Once a customer buys the equipment, the recurring fee provides a steady, high-margin income stream that supports the company's bottom line.
If subscriptions shrink, that recurring revenue fades, and the company's financial health weakens. Morgan Stanley's forecast implies that the pool of people willing to pay for Peloton's digital fitness content is getting smaller, not bigger. The bank points to a simple mismatch: Peloton's pitch is built around at-home, cardio-heavy workouts, but consumers are increasingly gravitating back to in-person gyms and strength training.
This is part of a broader post-pandemic trend. During lockdowns, home fitness boomed, and Peloton was one of the biggest winners. But as gyms reopened and daily life normalized, many people returned to their old routines. The novelty of exercising in the living room has worn off for some, and the social and equipment variety of a gym is drawing people back.
What it means for investors
For investors, the downgrade is a warning sign. A price target of $4.50 suggests the bank sees significant downside from where the stock has traded recently. It's a clear signal that Morgan Stanley believes the market is still too optimistic about Peloton's ability to turn things around.
It's also worth noting that this isn't just about Peloton's current numbers—it's about the trajectory. If the subscriber base is indeed shrinking at 6% annually for several years, the company will need to find new ways to generate revenue or cut costs aggressively to stay profitable. That could mean higher prices, new product lines, or a greater focus on its app-only offerings, but none of those are guaranteed to succeed.
For those who own Peloton shares, the key takeaway is to watch the company's quarterly subscription numbers closely. If they start to stabilize or grow, the bearish thesis weakens. If they keep falling, the stock could face more pressure. As always, it's important to remember that analyst forecasts are just one opinion—they can be wrong, and markets often move in unexpected ways.
Morgan Stanley's view also fits into a larger narrative about the fitness industry. The shift back to gyms is not unique to Peloton; it affects the entire home-fitness sector. Companies that bet heavily on the pandemic-era boom are now having to adapt to a world where people have more options. For investors, this is a reminder that trends born out of crises can reverse quickly once conditions change.
In the meantime, Peloton is not standing still. The company has been working to reposition itself, but the road ahead looks challenging. With Morgan Stanley's downgrade, the debate over Peloton's future is now more sharply defined: bulls see a recovery, bears see a long decline. The coming quarters will show who's right.
