On Monday, an analyst at Craig-Hallum adjusted the stock price target for Wag! Group Co. (NASDAQ: PET), a company specializing in pet services, from $5.50 to $3.00, while continuing to endorse the stock with a Buy rating.
The revision follows Wag!'s announcement of preliminary Q2 results that exhibited a revenue shortfall but a record in Adjusted EBITDA, showing the company's shift towards prioritizing profitability and free cash flow (FCF).
The firm also initiated a $10 million secondary offering, which will be used to pay down an additional $8.5 million in debt. Wag! anticipates refinancing its high-cost debt within the next couple of months.
Despite the dilutive effect of the secondary offering on current shareholders, the analyst views these measures as a disciplined strategic pivot that substantially reduces the risk profile of the stock and emphasizes the inherent profitability of the company's business model.
Wag! has revised its FY24 revenue guidance downwards by 15% at the midpoint, while simultaneously increasing its Adjusted EBITDA guidance by 50%. This suggests that the company may achieve 10% or higher Adjusted EBITDA margins earlier than previously anticipated.
Moreover, Wag! has reduced staffing by 10% and the focus on profitability is expected to impact revenues negatively in Q3 until the refinancing is finalized. After this, the company is projected to return to revenue growth.
The analyst estimates that upon completion of the refinancing, Wag! could save between $2 million to $3 million in cash interest, which could then be allocated towards growth initiatives. While the analyst expressed that a sooner pivot towards profitability would have been preferable, the current steps are seen as a sign of the Wag! team's maturation.
The forthcoming transition to positive free cash flow is also expected to draw in a new group of investors. Despite the lowered price target, the firm's Buy rating on Wag! Group Co. remains reaffirmed.
In other recent news, Wag! Group Co. has seen a mix of financial results and strategic changes. Wag! Group Co. reported second-quarter revenues between $18.5 million and $19 million, but also a net loss ranging from $2.2 million to $2.4 million.
Despite the loss, the company's adjusted EBITDA figures showed a positive range of $1.5 million to $1.7 million. In response to these results, both Roth/MKM and DA Davidson have adjusted their price targets for Wag! Group Co. shares to $3.50, while maintaining a Buy recommendation.
In addition, the company has adjusted its full-year 2024 forecast, now expecting lower revenue but increased profitability. These recent developments have led to strategic changes at the company, including transitioning to a fully remote workforce and reducing headcount by more than 10%.
Wag! Group Co. has also launched Furscription, a digital tool for veterinary staff, and WeCompare, a consumer brand for insurance product comparison, as part of its growth acceleration initiatives for the latter half of 2024.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.