00:00 Back in March Weight Watchers announced it was buying a platform that prescribes weight loss
00:04 drugs including Ozempic. That news has pushed the stock up 167% year to date. But the company is not
00:12 profitable right now and has a lot of debt. So let's take a closer look. At the current share
00:17 price just above $10 Weight Watchers has a market cap of $813 million. It's got $91 million of cash
00:25 but $1.4 billion of debt so the enterprise value is $2.1 billion. Revenue over the last 12 months
00:31 is $942 million and adjusted EBITDA is $168 million but net income is -$306 million and free cash flow
00:40 is only $20 million. That means Weight Watchers is valued at 2.3 times revenue and over 100 times
00:47 free cash flow. With so much debt on the balance sheet Weight Watchers is in danger of bankruptcy
00:52 and recent trends don't look good. Revenue for the first 6 months of fiscal 2023 were $469 million
01:00 which is a 17% decrease from the year before. In fact Weight Watchers revenue has dropped every
01:06 year since 2018 and the stock price has fallen 90% over that time. Most of Weight Watchers revenue
01:12 is made up of recurring subscriptions which is normally high quality. The problem is that the
01:17 Weight Watchers brand is seen as outdated and there is a lot of competition in the space with
01:22 low barriers to entry. So why is the stock up 167%? A lot is riding on Weight Watchers acquisition of
01:30 Sequence a telehealth platform that prescribes Ozempic. The market for weight loss drugs like
01:36 Ozempic is absolutely huge with sales expected to hit $14 billion next year. Sequence itself has
01:43 taken its sales to $6.5 million in the latest quarter from just $28,000 the year before. That's
01:50 an increase of over 20,000%. So Weight Watchers has made a smart move buying this platform just
01:56 as we are witnessing a boom in the market for weight loss drugs. The problem is Sequence
02:00 doesn't manufacture Ozempic, Novo Nordisk does and Novo Nordisk has run out of supply. As a result
02:07 Weight Watchers had to cut its revenue outlook from the drug from $45 million to $30 million
02:14 across the next two quarters. That news sent the stock down more than 20%.
02:18 Overall this is a highly volatile stock with a loaded balance sheet and an unpredictable outcome.
02:24 If Sequence can get its hands on more Ozempic and the stock continues its rally, Weight Watchers
02:30 might be able to raise enough capital to fix its balance sheet and gain some breathing room. In
02:35 that situation the stock could be a big winner. But with net debt of more than 7 times EBITDA
02:41 and a declining legacy business, the company doesn't have much time to get it right.
02:46 Weight Watchers has a new CEO who looks competent but a small uptick in subscribers last quarter
02:53 isn't enough evidence of a turnaround and no one seems to know when Ozempic supply will be sorted.
02:58 This is a stock worth watching but it's also a highly risky investment. But these are my personal
03:03 opinions not financial advice and I do hold some shares in Weight Watchers International.
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