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: Talkspace stock slammed after earnings; issues are not ‘easily remedied,’ analyst says in downgrade

Talkspace Inc. is set to lose more than a third of its value Tuesday after the teletherapy company posted disappointing results and announced the departure of several key executives.

Chief Executive Oren Frank, a co-founder, will be stepping down from his post and from Talkspace’s

board of directors, with the change effective today. Fellow co-founder Roni Frank, who served as the head of clinical services at Talkspace, has also stepped down. Both will serve as strategic advisors to the board over the next six months “to provide continuity and strategic direction,” per the company’s Monday afternoon release.

Chairman Douglas Braunstein will serve as interim CEO while Talkspace looks for a permanent replacement.

The company also delivered its third-quarter financial results late Monday, showing net income of $1.5 million and net revenue of $26.4 million. Chief Financial Officer Jennifer Fulk called the results “disappointing,” as revenue fell short of management’s expectations due to a lower count of business-to-consumer customers, as well as a one-time accounting reserve adjustment.

Revenue also fell short of the FactSet consensus, which was for $31.9 million.

Shares are off more than 35% in midday trading Tuesday.

The results sparked a downgrade at Citi. “While the issues this quarter were easily diagnosed (retention issues, product delays, billing difficulties, low utilization rates, high provider/marketing expense), we do not think they will be easily remedied,” Citi Research analyst Daniel Grosslight wrote in a note to clients.

The executive attrition has “exacerbated” his concerns, and while a follow-up conversation with Talkspace gave him “incremental confidence in the current management team,” he worries that it will take time for a new CEO to drive changes, all while competitive pressures heat up.

Grosslight lowered his rating to neutral from buy and cut his price target to $3.50 from $7 a share.

Baird analyst Vikram Kesavabhotla downgraded the stock to neutral from outperform as well, and he slashed his price target to $3 from $10.

“The quarter was disappointing, but almost did not matter in comparison to the broader dynamics — including management turnover and pulling FY/long-term guidance,” he wrote. “We underappreciated how quickly execution challenges
and the macro/competitive environment could impact TALK.”

William Blair analyst Ryan Daniels sounded relatively more upbeat about the stock’s prospects.

“Overall, it was a disappointing quarter for the organization (albeit the sales miss was fairly modest, after adjusting for the prior-period, noncash adjustment),” he wrote. “However, we believe the search for a new CEO could be a nice key catalyst for the stock over the coming quarters (a positive as the company transitions from an entrepreneurial founder/CEO to a CEO more heavy on operational/public company experience).”

He has an outperform rating on the stock, which has declined about 60% over the past three months as the S&P 500

has risen roughly 5%

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