Shares of Weight Watchers International (WW +0.00%) jumped nearly 30% in the opening weeks of the new year, but the stock has since given back these gains and is down 6% as of this writing.
The company benefited from the seasonal enthusiasm that comes with New Year's resolutions and also spokesperson Oprah Winfrey’s 2020 Vision Tour, which kicked off in January. However, WW stock will likely continue to be volatile as the company struggles with sales growth. Competition is only increasing in the weight loss and wellness space, while consumers have ever-increasing options in the forms of websites, apps, and trendy diets.
Image source: Weight Watchers.
Recent results
Weight Watchers saw declines in both earnings per share and revenue during the first, second, and third quarter of fiscal 2019. End-of-period subscribers increased during the year, but growth came from lower-priced digital subscriptions. For the company’s higher-priced "Studio + Digital" option, which gives clients access to in-person workshops, subscription sales contracted during all three quarters. During the third quarter, Studio + Digital subscriber losses decelerated from double digits in the first half of the year to a drop of 7.3% year over year.
Competition in the space is heating up
The wellness provider continues to battle competition from traditional weight-loss businesses like Nutrisystem, as well as from upstarts like Noom. The wellness and weight-loss space is highly fragmented with many individual online weight-loss coaches and wellness apps all vying to help consumers with their health goals.
For example, on December 26, Weight Watchers shares closed down 8.6% after competitor Tivity Health’s Nutrisystem division announced its new customizable weight loss program based on individual goals, food preferences, and body types. The plans will be delivered via Nutrisystem’s NuMi app. The wellness company is also rolling out 41 new menu items to complement the debut of its new personal plans. Veggie lunch bowls and chocolate cream-filled cupcakes are among the new offerings.
Noom is another formidable competitor to Weight Watchers. It has attracted $114 million in funding from top investors, including Sequoia Capital, WhatsApp co-founder Jan Koum, and Serena Williams. Noom announced on January 18 that it had signed up 55,000 people to its app on New Year’s Day 2020, and WW stock sank over 10% the following trading day. Noom has over 50 million users, and its revenue nearly quadrupled from 2018’s $61 million to 2019’s $237 million. The app-driven program boasts customized offerings for customers as well as access to a specialist who can help with wellness goals.
These major threats come on top of the abundance of individual websites and coaches offering weight-loss support and programs.
Things are likely to remain difficult in 2020
While Oprah Winfrey’s extended partnership and 2020 Vision Tour presented by Weight Watchers are positive for the company’s brand, they're not enough to boost revenue or subscriber numbers. Consumers now have access to an increasing range of solutions.
Given this new competitive environment, WW will have a hard time returning to positive sales growth. While the stock trades at 17 times forward earnings estimates, below the broad consumer discretionary sector, the fundamentals of the company do not warrant a higher valuation right now. And the recent volatility of Weight Watchers shares is likely to be just a sign of things to come.
