In Focus: Weight Watchers (WW)
Thanks for checking out In Focus, the weekly look into a company, companies, or markets that made the Wall Street news cycle. This week we bring Weight Watchers in focus.
The Curious Case of Weight Watchers
I cannot for the life of me figure out why Weight Watchers (WW) is a $2 billion company. When I think about brands that have been around for my enitre life Weight Watchers makes the list. It's been in and out of fashion, but weight loss has been a thing since as long as I can remember. The $2 billion number is the market cap of the company at the time of this writing $31.51 per share x 67 million outstanding shares.When I look at a company to invest in this is where I start, with the market cap.
But maybe I shouldn't be complaining about Weight Watchers only being a $2 billion company. Maybe I should just buy it, shut up, and wait for the money to roll in.
The Trends is in Their Favor
New York City enacted its calorie count law in 2008 and California followed shortly after. That may have been the start of the more health conscious society we have today in the United States. Smart phones and apps also added to this with the gamification of working out, getting fit, or losing weight.
With the number of health cooking shows and blogs that exist today, the number of fitness trackers, healthy Pinterest recipes, low calorie, low fat, and low sugar diets, why is Weight Watchers worth only $2 billion? The trend seems to be in their favor.
History (My Second Favorite Subject)
The reason I keep harping on this $2 billion number is because when Weight Watchers became a public company all the way back in 2001, it was a $2.5 billion company, 105 million shares offered at $24 per share. 18 years later we're still at $2 billion.
Entertainment Mogul Value Investor
Maybe when Oprah bought 8% of the Weight Watchers back in 2015 she knew the company was worth $2 billion. At the time of her purchase, the stock was trading at under $7 per share, and according to the Weight Watchers 10Q from November 3, 2015 the company had 63.6 million shares outstanding, at $7 per share that's a $445 million market cap. Ching, ching Oprah.
New Moves, New Attitude
Since the Weight Watchers earnings release on Tuesday August 6, the stock is up over 48%. The company reported a revenue miss by $7 million, but did exceed EPS estimates by $0.13, and provided a 2019 financial outlook that was better than analyst had expected.
"We are becoming the world's partner in wellness, No matter what your goal is –- to lose weight, eat healthier, move more, develop a positive mindset, or all of the above -– we will deliver science-based solutions that fit into people's lives." Mindy Grossman, WW's president and CEO.
The company has made a subtle shift in it's approach to the market. Weight Watchers wants to be more than a diet company, they are attempting to be a wellness company, which is the reason behind the name change from Weight Watcher to WW, and the change in ticker symbol from WTW to WW. This was a head scratcher to me at first because the name "Weight Watchers" carried so much brand equity, but it's starting to make a bit more sense now.
According to The Global Wellness Institute, wellness is a $4 trillion economy. Below is the breakdown from The Global Wellness article.
Key sectors include:
Personal Care, Beauty and Anti-Aging ($1,083 billion)
Healthy Eating, Nutrition and Weight Loss ($702 billion)
Wellness Tourism ($639 billion)
Fitness and Mind-Body ($595 billion)
Preventative and Personalized Medicine and Public Health ($575 billion)
Traditional and Complementary Medicine ($360 billion)
Wellness Lifestyle Real Estate ($134 billion)
Spa Economy ($119 billion)
Thermal/Mineral Springs ($56 billion)
Workplace Wellness ($48 billion)
Will Weight Watchers dominate all of the key sectors above? Probably not, but with a solid foundation in the healthy eating, nutrition and weight loss sector, they can attempt to make in-roads into many of the other sectors. Look at what they're doing in the mind-body space.
Some Other Numbers
In the Weight Watchers earnings report they noted $1.6 billion in debt and only $181 million in cash. Operating income was down 16% y/y and overall global recruitment was still negative for the year. Not the type of numbers that scream buy.
The 48% increase in the stock was caused by investors who believe the WW transformation is near completion or completed, and that there is nothing but clear skies ahead if WW management executes.
Be Like Oprah
Buying a $2 billion company for $2 billion isn't much of a deal. I like the WW story, the global health trend helps the company, the move into overall wellness was a smart move. The push to increase digital subscriptions also another great move (you know how much Wall Street loves digital subscription numbers). With all that, I'm not a buyer here.
Weight Watchers does make my watch list. I don't believe this current rally has legs to keep going, buying on a deep pull back makes better sense than chasing the stock at its current price. I'm going to try to be like Oprah and add this one to the portfolio when it's on sale.
This is where I leave you, with a wait and see on Weight Watchers, add it to the watchlist, and pay attention to it when it falls below $2 billion.