GLP-1 Disruption And Declining Behavioral Subscribers Will Challenge Margins Yet Support Long-Term Opportunity

Catalysts

About WW International

WW International provides integrated weight management solutions that combine digital behavioral programs with clinical telehealth services and medication access.

What are the underlying business or industry changes driving this perspective?

• Although GLP-1 adoption and the shift toward medicalized weight management are expanding the total addressable market, WW may struggle to convert this broad awareness into durable subscriber growth if behavioral sign-ups remain weak, which could limit long-term revenue acceleration.
• While the launch of oral GLP-1s and falling medication prices could broaden access for millions of potential patients, payer scrutiny and reimbursement friction may keep many users in short-duration cash pay plans, which could restrain WW Clinic retention and pressure net margins.
• Although the new unified app and mobile-first website aim to personalize journeys and surface higher value clinical offerings, execution risk and delayed member uptake could mean the data and AI advantages show up slowly in improved ARPU and earnings.
• While expanding into areas such as menopause, women’s health and international telehealth should diversify revenue streams, each new vertical requires specialized clinical operations and marketing, increasing complexity and creating a risk of diluted profitability if scale is slower than expected.
• Although automation, AI tools and a more variable cost structure support WW’s high adjusted EBITDA margin profile today, heavier peak-season marketing and ongoing technology investments may outpace subscriber growth, which could compress margins and cap earnings growth.

Assumptions

This narrative explores a more pessimistic perspective on WW International compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts. How have these above catalysts been quantified?

• The bearish analysts are assuming WW International's revenue will decrease by 5.2% annually over the next 3 years.
• The bearish analysts are not forecasting that WW International will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate WW International's profit margin will increase from 148.4% to the average US Consumer Services industry of 12.8% in 3 years.
• If WW International's profit margin were to converge on the industry average, you could expect earnings to reach $79.6 million (and earnings per share of $9.9) by about December 2028, down from $1.1 billion today.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 5.2x on those 2028 earnings, up from 0.2x today. This future PE is lower than the current PE for the US Consumer Services industry at 16.8x.
• The bearish analysts expect the number of shares outstanding to decline by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.42%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Secular shifts toward GLP-1 medications may continue to cannibalize traditional behavioral programs, and with behavioral subscribers already down 20% year over year and behavioral revenue down 16% year over year, WW could see a structurally smaller legacy business, putting sustained pressure on total revenue.
• Intensifying competition from lower cost compounded GLP-1 providers and future price compression on branded medications could force WW to keep clinic pricing and promotional activity aggressive, which would limit the benefit from higher value clinical mix and weigh on ARPU and net margins.
• The heavy reliance on peak season marketing, upcoming brand relaunch and influencer driven campaigns, combined with a subscription model that recognizes revenue over time, means rising customer acquisition costs may not be offset by sufficient cohort size or retention, which would dampen earnings growth and compress EBITDA margins.
• Execution risk around the full digital transformation, including replatforming the app, rebuilding the website and integrating clinical and behavioral journeys, could lead to delays, member friction or lower than expected conversion, which would slow subscriber growth and constrain revenue and earnings.
• Despite a delevered balance sheet, the company still carries a sizable term loan at SOFR plus 680 basis points and must prepay excess cash above 100 million, so any slowdown in cash generation from lower revenue or thinner margins would reduce financial flexibility and could limit reinvestment in growth, ultimately constraining long term earnings power.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bearish price target for WW International is $38.0, which represents up to two standard deviations below the consensus price target of $47.33. This valuation is based on what can be assumed as the expectations of WW International's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $60.0, and the most bearish reporting a price target of just $38.0.
  
• In order for you to agree with the more bearish analyst cohort, you'd need to believe that by 2028, revenues will be $623.9 million, earnings will come to $79.6 million, and it would be trading on a PE ratio of 5.2x, assuming you use a discount rate of 10.4%.
  
• Given the current share price of $25.49, the analyst price target of $38.0 is 32.9% higher. Despite analysts expecting the underlying business to decline, they seem to believe it's more valuable than what the market thinks.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.