WW International Inc (NASDAQ:WW) shares fell more than 3% pre-market today after Morgan Stanley analysts downgraded the company to Equalweight from Overweight and significantly reduced the price target to $1.25 from $6.50.
The analysts highlighted significant challenges for WW, pointing out broad issues in attracting new users, which may impact subscriber growth and profitability. WW is experiencing a downturn in its core behavioral dieting app business due to the increasing popularity of obesity medications, which present a long-term obstacle. However, the company’s Clinical segment is expanding rapidly due to emerging market opportunities, potentially offsetting the declines in its core business.
The analysts noted that the company’s high debt load adds to its risk profile, making it a high-stakes situation dependent on the balance between core business declines and the rapid growth of the Clinical segment. Initially optimistic about WW’s competitive advantages in the GLP-1 telehealth space driving rapid scaling and sustainable positive free cash flow, The analysts now see a material step back in performance through the second quarter. App downloads, indicative of the core business, have decelerated by 16% year-over-year, while web traffic for the Clinical segment has declined by 18% quarter-over-quarter.