WW Worldwide: Previewing A Pivotal Q2 Earnings Report (NASDAQ:WW)

WW Worldwide Inc (NASDAQ:WW) has emerged as one of many extra shocking turnaround tales out there with shares greater than doubling in worth to this point yr to this point. Following a disastrous 2022, the corporate is benefiting from its acquisition of startup weight administration telehealth supplier “Sequence” which has labored to reinvigorate the expansion outlook by a compelling technique pivot.

Certainly, that was our bullish thesis for the inventory once we final lined WW again in March. Our replace right now highlights key developments and tendencies to observe forward of the upcoming Q2.

Importantly, this would be the first report because the Sequence deal closed offering the market with a primary look into the financials whereas setting the tone for the second half of the yr. General, the corporate has some challenges together with managing a excessive debt degree, however we keep a bullish outlook and see room for shares to push larger going ahead.

WW Q2 Earnings Preview

WW is ready to report its Q2 earnings on Thursday, August 3, after the market shut. The consensus EPS of $0.10 represents a decline of -69% in comparison with the interval final yr, whereas the market additionally sees revenues declining by -15% to $230 million this quarter. Earnings stay pressured by mushy subscriber numbers whereas ongoing restructuring costs have restricted the profitability.

Whereas the headline numbers at face worth are objectively poor, the understanding is that there’s an ongoing stabilization of core working metrics. WW ended Q1 with 4 million subscribers between its digital platform and in-person workshop shoppers which got here in forward of steering.

Whilst the entire variety of members fell by 12% y/y, the corporate added 500k internet subscribers in Q1 in comparison with 400k in Q1 2022 in what’s acknowledged because the strongest seasonal interval of the yr.

What’s spectacular is that this end result was achieved at the same time as the corporate posted an -18% decline in advertising and marketing spend, transferring away from the dearer conventional TV promoting with some different campaigns.

Over the last earnings conference call, administration famous the member “activation fee”, reflecting a member’s engagement on the platforms has been trending up between 4% to eight% year-over-year. That is essential as a result of it suggests prospects are discovering success within the Weight Watchers options early on of their journey, that means they traditionally exhibit decrease churn as long-term subscribers.

By this measure, we’ll look towards the Q2 report back to see a continuation of this early stage in newfound subscriber momentum and complete weeks paid as the important thing monitoring factors.

From there, the corporate expects to finish 2023 with 100k extra internet subscribers over 2022, or flat excluding the Sequence enterprise affect, as the primary yr of a non-negative quantity since 2020.

When it comes to financials, the sturdy level is that working revenue stays optimistic even whereas materially decreased from ranges just some years in the past. Then again, WW ended Q1 with $140 million in money in opposition to $1.4 billion in long-term debt, with the levered stability sheet a weak level in its funding profile. That mentioned, there’s a path for stronger outcomes going ahead.

All Eyes on Sequence

The primary takeaway right here is that the tendencies from the core Weight Watchers program are transferring in the suitable route whereas the eye turns to the Sequence enterprise. As talked about, the deal is formally closed in April with outcomes now consolidated into WW earnings beginning this quarter.

As a recap, Sequence is a digital health platform specializing in scientific weight administration. Whereas Weight Watchers has historically centered on weight-reduction plan and way of life selections for members to drop some weight, Sequence takes a prescription strategy beginning with a digital session by a board-certified Physician.

The thought right here is to simplify the method potential sufferers take to entry new FDA-approved Glucagon-like peptide-1 ((GLP-1)) medicines like “Wegovy” and “Saxenda”. These have been discovered to suppress urge for food with strong signs of success for shedding weight, notably for the clinically overweight phase of the inhabitants.

New members pay a $49 session price which converts right into a $99 per-month subscription that features a customized therapy plan. The worth proposition of Sequence is that the platform additionally makes it straightforward for sufferers to coordinate with medical insurance protection and streamline the documentation course of.

WW final confirmed Sequence had roughly 27k prospects which interprets into an annual income run fee of $32 million, anticipated to climb going ahead, defending a determine nearer to 100k subscribers by year-end.

The best way we see it, the opportunity for WW is to leverage its present Weight Watchers membership base and construct an built-in ecosystem for a extra full suite of weight reduction options. Equally, new Sequence subscribers might discover worth in incorporating Weight Watcher’s way of life and behavioral program.

In different phrases, bundling synergies over the following few years highlights a path to unlock worth for the general enterprise. We count on to get an replace from administration on long-term plans to scale the Sequence platform which needs to be accretive to firm-wide financials.

What’s Subsequent For WW?

There’s so much to love about WW with the brand new Sequence dynamic, however it’s additionally clear to us that this stays a “present me” story. We have been very bullish on the inventory when the deal was first introduced, however the 100% rally over the interval has seemingly already integrated a lot of that enthusiasm.

The bullish case right here is that the Sequence tendencies exhibit distinctive subscriber development, confirming the demand for scientific weight reduction administration through prescription medicines. WW must discover a option to translate that momentum into firming profitability and stronger money circulation.

In keeping with the consensus, 2023 is ready to be one thing of a transitional yr, as earnings are nonetheless pressured by the restructuring prices, whereas the top-line decline a minimum of moderates in comparison with weaker tendencies in 2022. By this measure, the larger wave is predicted to return in 2024 the place WW is predicted to reclaim double-digit income development and the market forecast for EPS to succeed in $0.63 implies a 1-year ahead P/E of 12x.

There may be uncertainty to these figures, however the potential that WW emerges stronger into subsequent yr might be sufficient to work as a catalyst for the inventory to reprice even larger. The upcoming Q2 outcomes will present some wanted readability on present tendencies.

Last Ideas

The setup right here for shares of WW is straightforward. Large earnings and top-line beat needs to be sufficient for shares to run larger because the market incorporates a stronger outlook. One cause for that might be that the corporate merely benefited from the information protection surrounding the Sequence deal and curiosity in weight reduction medicines, serving to to drive subscriber development.

Then again, disappointing tendencies that means WW was unable to transform that “hype” would open the door for a leg decrease within the inventory by forcing a reassessment of the outlook.

What we are able to say for sure is that WW stays extremely speculative, given its excessive debt load and lack of optimistic free money circulation which ought to hold shares risky. That being mentioned, we’re bullish right here and can take the over into the Q2 report.