Special Situation: Betting on WW Post-Bankruptcy
Why a slimmed down version of Weight Watchers might be poised to take on the next stage of weight loss
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For those of you who remember, we shorted Weight Watchers (WW) back in January of 2024 when we first released our report on the company. We outlined that despite the company starting to move into branded weight loss medication with the acquisition of Sequence, the new vertical would not be enough to offset the massive decline in the core business. Combine that with a large debt load, and we did not think WW would be around long enough to see it through.
Fast forward to May of this year, and the company declared bankruptcy. Down >92% since our January 2024 post. We did write up two other posts (Feb’24 and Aug’24) if you’re interested in reading.
Our ‘short’ track record is largely stellar, but there is one thing we’ve gotten wrong in the past that we’ve come to learn as time has progressed. This ‘lesson’ revolves around looking at the opportunity as a long after our short thesis had played out. We can easily point to names we’ve shorted that turned out to be good longs after the fact; Robinhood (HOOD), Chewy (CHWY), and Peloton (PTON) to name a few.
While we all know that turnarounds are never easy or quick, after the commentary that Weight Watchers gave post their recent earnings call (Aug 11) and the subsequent sell-off, we believe that Weight Watchers (WW) makes for an interesting turnaround investment for anyone looking for a new special situation to add to their portfolio.
Mind you, this is coming from the people who wrote the initial short report stating they couldn't make it. This is a high-risk trade and should be treated as such.
Also, I’ve been sick this weekend, and I ask that you please bear with me for the writing of today’s post if it seems out of whack. I figured even with the head fog that I have, I’d at least get this out to you so you can see the opportunity for yourselves.
With that said, let’s get into it.
Key Points
WW restructuring has allowed it to offload >$1.15 billion of debt, and the first earnings results show a better net debt position (~$153 million in cash / ~$465 million in debt) than initially thought.
WW holistic approach to weight loss stands out amongst competitors in the highly crowded space, which is desired for further business/insurance partnerships that are looking to optimize patient outcomes for continued weight loss coverage.
Further B2B partnerships and potentially new announcements with other pharma companies (LLY) could drive more awareness and model adoption for both cash-paying and insurance-covered subscribers.
Management acknowledged another sequential decline in their clinical business due to them rolling off compounded GLP-1s, which were reflected in the guide.
Material upside risk from further pharma suits against telehealth/pharmacies for illegally compounding GLP-1s has not been appropriately priced into the stock.
While the stock has sold off ~18% since the first earnings post-BK, we do not think that management is overpromising on their FY’25 guide, and paying just 4.4x FY’26 EBITDA right now can make for a compelling argument.
Disclaimer: We are long Weight Watchers International (WW).
