Best Idea Short WEBR reported a 2Q revenue and EBITDA miss of about 8% on each. Management also significantly reduced the full year guide to EBITDA of $140mm-$180mm, about half the prior $300mm midpoint. The question after seeing that is likely, "then why was the stock barely down on the day"? Well the answer is pretty simple, the core private holders that took this public still own over 90% of the shares outstanding and ~60% of the floating A shares. The stock is still in price discovery mode as the institutional crowd has struggled to find enough borrow to actually put on a short position, and sponsors are reluctant to sell after such a rapid fall in the stock. The guide down culprit is retail traffic and purchase trends in 2022. The crux of out short call was the high likelihood of demand pressure into 2022 given normalization of unit consumption, especially in the context of significant discretionary income pressure Y/Y. Revenue trends about 40% to 50% above 2019 levels were simply not sustainable. Now the company is taking up price by double digits to offset cost pressures around inflation in freight and materials, so gross margin should be getting progressively better in the coming quarters, but unit trends have been and likely will continue to be volatile. The question now is will guidance be right? While the stock has been in price discovery mode, management is in guidance discovery mode, meaning this is a new public company, with a team learning how to guide, and having to do it in what will likely be some of the worst demand reversion trends it has ever seen. Let’s just say we’d take the under on any management team’s ability to properly guide the downside risk in such an environment. Even if the management team is correct, with $2bn in market cap and $1.3bn in debt, it’s trading at ~20x EBITDA on falling numbers. Leverage sits at about 7x Net Debt to EBITDA. It’s no wonder there is no borrow.
We’re coming out slightly below the bottom end of the EBITDA range at $136mm, with 2023 closer to $200mm. At a low DD EBITDA multiple, this stock is worth around $1 to $3. Staying short WEBR.
