What can't Oprah do? The media mogul, actress, producer, and talk show host can add another title to her resume: successful investor. While high-profile hedge fund managers David Einhorn and Bill Ackman have notably underperformed the market and are facing an onslaught of redemptions from fed-up investors, Oprah's timely investment in Weight Watchers International (WTW +0.00%) has significantly outperformed the market.
In March, Oprah booked some of those gains, selling a block of shares for between $58 and $64 each, approximately 775% higher than her purchase price of $6.79. If there's any downside to Oprah's trade, it would be selling too early: In the three months following Oprah's sale, shares of the company have advanced over 40%, significantly outpacing the broad market. Did Oprah make a big mistake?
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It's a new Weight Watchers
Weight Watchers has significantly improved its operations after Oprah's investment. In 2015, the year she partnered with the company, Weight Watchers reported a year-over-year revenue decline of 21% as the company's storefront and meeting business model was under attack by myriad online communities and diet-focused apps. By comparison, Weight Watchers reported $1.3 billion in revenue in 2017, an increase of 12% from the prior year.
The company has continued to build upon its growth strategy by improving its own app experience and by expanding its successful Weight Watchers Freestyle program as first-quarter net revenue increased approximately 20% over the prior year.
Things look even better on the bottom line -- earnings per share have increased 330% since 2015. Additionally, management raised full-year 2018 earnings guidance 22% at the midpoint during the first quarter. Unsurprisingly, the stock price has also benefited from valuation expansion as it was priced for a worse-case scenario pre-Oprah.
Why Oprah was smart to sell
That said, Oprah gave a good reason for selling 25% of her initial position. In a letter to investors she noted, "I am deeply committed to Weight Watchers and continue to see a bright future for the company." According to a statement, Oprah sold a portion of her shares to diversify her investment portfolio, which is a wise decision for anybody when one position becomes excessively large in relation to their overall portfolio.
As of this writing, Forbes estimates Oprah's net worth at $3.1 billion. Post-sale, Oprah owns 5.4 million shares with an option for 2.1 million shares, which is currently worth approximately $640 million, still a relatively large part of her total net worth. Oprah has assured Weight Watchers investors she will not be selling any more of her stake for the remainder of the year.
Although she's a director, it's likely she's not intimately involved in the day-to-day operations, so I'm not surprised that she reduced her position. She's not alone in this regard -- even former Microsoft CEO and second-richest person in the world Bill Gates has been selling off shares of his former company to diversify his wealth despite strong returns under new CEO Satya Nadella. Oprah and the company's other shareholders are still positioned to benefit from Weight Watchers' reinvention.
