Life Time Reports Strong 2025 Results Amidst Persistent Growth Concerns

What happened

Life Time announced robust fourth quarter and full-year 2025 financial results, with revenue increasing 12.3% to $745.1 million for Q4 and 14.3% to $2,995.3 million annually. Net income surged 230.6% in Q4 to $123.0 million, driven by premium membership monetization and operational leverage, while the company also unveiled a $500 million share repurchase program. These figures align with the DeepValue report's base scenario of high-single-digit to low-teens revenue growth and margin stability from its asset-light expansion. However, the report cautions that this performance is increasingly reliant on ARPU growth rather than membership volume, with fixed costs from long-term leases posing a structural risk. Investors should scrutinize beyond the headline gains, as the stock's valuation already discounts sustained optimism, leaving little margin for error in a crowded market narrative.

Implication

Life Time's financial outperformance confirms its ability to monetize premium wellness demand through revenue growth and cost control, supporting short-term investor confidence. The share repurchase program signals management's belief in undervaluation, yet it may also indicate limited high-return growth opportunities or an attempt to bolster sentiment amid a crowded long side. However, the DeepValue report highlights that the stock trades at a premium, embedding expectations for continued low-teens growth and deleveraging, which leaves it vulnerable to any deceleration in comparable-center sales or ARPU expansion. Key risks include rising rent expenses from the lease-heavy model, potential equity dilution if internal funding falls short, and consumer sensitivity that could erode pricing power. Therefore, while the news is positive, it does not alter the fundamental risk/reward imbalance, and investors should adhere to the 'WAIT' recommendation for a more attractive entry point.

Thesis delta

The 2025 results corroborate the DeepValue report's base case of strong near-term fundamentals but do not mitigate the underlying risks of fixed-cost inflation and lease-adjusted leverage. Thus, the thesis remains unchanged: patience is warranted until comps sustain above 10% and net leverage stays below 1.7x without dilution, offering a better margin of safety.