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WTRH - Price Lagging despite Record Revenue & turning profitable

NASDAQ:WTRH   WAITR HOLDINGS INC
$WTRH It's been quite a ride for Waitr since it IPO'd in November 2018. From trading at an all time high on 16th Nov 2018 at 15.6, to being priced for bankruptcy one short year later. Trading at a all time low of 0.213 on 14th November 2018. It was the debt fuelled Bitesquad acquisition in December 2018 that was the start of the downward spiral in the stock price. Since joining on Jan 3rd 2019, Carl Grimstad has been instrumental in turning the company around: “We were over-staffed, we were paying a lot of our vendors incorrectly or too much, our service offering was mispriced, we had a driver model that could never work, and we had a dwindling cash position and a capital structure—meaning $120 million in debt in front of equity that had no value—and were coming off a very big negative EBITDA year,” said Grimstad, summing up the brutal position he found upon arrival according to his recent interview on foodondemandnews.com

It's fair to say, that the efforts have been paying off. The company has turned profitable in the last quarter, posting record quarterly revenue of 60.6 million. It's fair to say, that the company is in its best shape ever, yet the price is lagging both of its debut and the multiple applied to its peers , following the recent wave of consolidation. It would seem quite fitting, if the price were to reclaim its all time high by November this year, marking the completion of the turnaround.

Acquisition Speculation
There is speculation, that Waitr is a hot acquisition target with a possibility to be acquired before they get to announce 3rd quarter earnings , which would be managed by Jefferies, given the strong relationship with Richard Handler (Jefferies CEO) and Waitr. In addition to this, board members are commonly paid by Restricted Stock Units (RSUs), which receive their market value when they vest. One board member, Jonathan Green, has not received his RSUs this year. One theory suggests conflict of interest with a pending deal concerning Delivery Hero, given he is partner at Luxor Capital who led a financing round of Delivery Hero as far back as 2014. More recently, Luxor decided to convert 12.5 million of the debt in Waitr to equity. It's notable that despite the recent run-up in price since the conversion, Luxor has not sold anything for what would in effect translate to be over 200% profit. Other connections between the two companies include:
- Mats Diedrichsen who has recently joined as an Advisor, after having left delivery hero.
- Arthur Maas, Former CTO /CPO of Delievery Hero who is advising both Delivery Hero and Waitr out of Berlin.
- Jeanette Gorgas (USA) a supervisory board member and the strategy committee chairperson
(Credit for surfacing those relationships to Riceter)

Finally, the fly has reported that on Tuesday 11th August, there is a virtual meeting between Jefferies and Waitr Management. The companies already have a strong relationship between them given the ATM offer was carried out by Jefferies and one can imagine they must have been on speed dial by the Waitr team. One theory, is that Jefferies is introducing a counterparty to an acquisition deal.

Please note - these are speculative points, connecting the dots and everyone should reach their own individual conclusions with the evidence presented here.

Fundamental Picture
Recently, the price has made some notable recovery to the levels we were seeing in July last year. The only difference is, that business is booming, the debt load is now manageable, given another 10 million has been paid down and terms renegotiated to lower interest rates. On top of this, the balance sheet is now in great shape with Waitr reporting $87 million cash on hand for July 30th. Another factor that held the stock price down until recently was an At The Money (ATM) stock offering, which has recently been completed. Waitr is the only Delivery company to turn profitable in the USA.

In terms of Valuation, the company is valued at 2.5x Revenues compared to an industry average of 5x revenues. What's more is that Waitr is the only delivery company to turn profitable in the USA and as such, could arguably command a larger revenue multiple.

Finally, Waitr has developed a niche, in which it competes in what are known as Tier1 / Tier2 areas which are sparsely populated and has done so by building strong ties with the local communities. It has been announcing recruitment for drivers in the local press, the announcements so far have exceeded 5k positions for drivers across the south-east, which mirrors the picture of tremendous growth that Waitr is seeing, what's remarkable is that it's being done while maintaining profitability.

Technical Picture

The recent price action got rejected at the 38.2% fib level from the all time high, to all time low. The recent pull back is healthy as it will allow the charting indicators to cool off the recent run-up and make another go at reclaiming 5.87 to target the 50% Fib level at 7.64 - All this provided that the charting pattern doesn't get interrupted by an acquisition.


One credible scenario is an acquisition over the coming month.
If that doesn't materialise, I anticipate some consolidation that will ultimately target the next 2 Fib Levels
Target 1: 7.64
Target 2: 9.39

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