About a year ago, I wrote about WingStop (WING) when it was trading at its all-time highs. I was impressed with its asset-light model—98% of restaurants are franchisee-owned—and solid margins. Instead of writing a bullish article, I ended up writing a bearish article as I found some accounting and disclosure issues. Interestingly, at that time, WING also decided to run the infamous doorbell Ad that got dog owners all riled up. The online backlash was something to behold. WING went on to fall 50%. It did, however, recover most of it in the recent rally since April.

As a policy, I generally don’t write about companies near or around their earnings releases. It is by design so that people don’t gamble with short-term options.

In any event. WING reported earnings recently, and people loved the results. The stock shot up 25%. Once people went through the details, it got summarily sold, and it has given back all the gains and then some. The biggest red flag is the same store sales growth or degrowth. The same store sales fell 1.9% in Q2 compared to the growth of 28.7% during the same period last year.

Now, there are other issues. Let’s look at them one by one.

Cash Flow Issues

Here are the highlights of the cash flow statement for the last three quarters.

If cash from operations is less than net income, one should investigate why, especially for an asset-light company like WING. Digging further into the Cash Flow Statement, one can see it is burning cash, and here are some findings:

• If one were to take out the stock-based compensation, the picture gets worse. SBC was 6 million, 5.3 million, and 6.2 million in Q4 2024, Q1 2025, and Q2 2025, respectively.

• The bigger issue? It has working capital issues, and the main cash burn is in the Ad spend.

So, let’s understand what is going on here. Some accounting fun for you. Do note that what WING is doing is kosher under GAAP.

WING’s main revenues are from franchisee fees and advertising fees it charges its franchisees. WING charges 6% of net sales after discounts, as franchisee fees, and 5.3% as advertising fees. Under GAAP, Ad fees get reported as revenues. All good here.

But now here is the balance sheet treatment of that. The net of what is received and what is spent on advertising shows up in the current assets as cash, and a similar amount shows up as a current liability, as it has to be eventually spent. It just can’t be held on to for perpetuity, unlike franchisee fees.

In Q2 2025, 35.5% of WING’s revenues, or 61.9 million, were from advertising fees. So, you might be wondering if WING is burning cash, how are they funding growth and paying that dividend? Good question.

In the QSR (Quick Service Restaurant) business, there is a common practice called Whole Business Securitization (WBS). WBS is basically the issuance of notes secured by a pool of income-generating assets other than financial assets, like loans or receivables, that make up substantially all the revenues of a business.

Here are the mechanics of it for any QSR.

WING did a WBS issuance of $500 million in Q4 2024. From Q2 earnings call:

There you have it. See that $1.21 billion of long-term debt in the balance sheet? That is all of WBS issuances accumulated over the years. And hence, the negative retained earnings and shareholder equity.

So, where is the risk? If WING is unable to issue WBS in the future, it will have to raise capital by issuing new shares, diluting existing shareholders. For now, that scenario is plausible in case of a major slowdown in store openings or growth; however, it is a remote possibility at this time.

That brings us to what the TAM of WING is.

WING Total Addressable Market

I will be using the TAM numbers guided by WING here. Let’s have some fun. Assumptions:

• WING will maintain its current rate of opening stores per year for ease of calculation, as it is hard to predict what they will do in the future.

• The fee percentage charged to franchisees will remain the same.

• Company-owned stores will remain at 2% of total stores.

As with projections like this, there are assumptions, but it is close enough. Now, how much would you be willing to pay for this, taking into account what we have discussed above? I am not paying a forward P/E of 75 for this, when I also take into account the commentary from the Q2 earnings call.

Q2 Earnings Call Highlights

There were some positives and some negatives. Here are some of the highlights from the Q2 earnings call.

• State of Consumer

• Wingstop Smart Kitchen

• Digital Business

• Loyalty Program

Duolingo

After DUOL’s CEO insulted teachers in May, I have not been able to let go of this. One of the risks I highlighted in my article in May, before all of that unfolded, was the edgy marketing of DUOL. Specifically, I said with one misstep, these guys will be in trouble. Here is what the CEO said in the recent earnings call.

The market couldn’t care less. The stock was trading up 35% on Thursday. While I was pontificating on X, explaining why I maintained my negative views, OpenAI was doing its GPT-5 demo. As part of the demo, OpenAI built a French learning app in under three minutes. The carnage began. DUOL lost more than half of its gains to end the day up 14%. On Friday, it lost 6% more, giving up most of the earnings spike.

As I have said, not everything is in the numbers and accounting. In any event, there is a lot of other stuff going on in the tariffs and geopolitical space. As more clarity is emerging, I am able to game theory out “stuff” now.

Until next time. Have fun!!!