Please ensure Javascript is enabled for purposes of website accessibility

Is It Time to Take Profits on Weight Watchers?

By Pearl Wang – Jun 21, 2020 at 10:29AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Shares have jumped recently, but the company faces many obstacles to revenue growth.

Weight Watchers (WW -7.21%) stock is up almost 70% over the last three months, but the company is facing a number of issues that may hold back its revenue growth. The first is increased competition from a growing number of wellness programs, diets, and coaches in the digital space. Social-distancing measures have also hurt WW's studio revenue, which may not return to pre-pandemic levels.

A woman walking out of a Weight Watchers studio.

Image Source: Weight Watchers.

Recent results showed an increase in subscribers

Weight Watchers announced that subscribers increased 7% as of June 6, 2020, as compared to June 8, 2019. The total 4.9 million current subscribers includes 3.8 million digital subscribers and 1.1 million studio + digital subscribers. Digital recruitment trends returned to growth in mid-April on a weekly basis versus a year ago.

While the weekly increases in digital customers have even accelerated since mid-April, WW is seeing significant declines in its studio + digital business. The drop in this more profitable segement is due to a suspension of in-person workshops since mid-March. This decrease in studio-related revenue has only been partially offset by the growth in digital revenue.

Currently, all WW workshops are virtual but still community-focused and coach-led. The company is reopening some studio locations with 400 projected by the end of June. Due to the  closures, management sees studio revenue sharply decreasing year over year in the second quarter.

Weight Watchers continues to face growing competition

There has been huge growth in the number of wellness and weight loss apps available. Consumers can choose from Noom, MyFitnessPal, Lose It!, Fooducate, and countless others. Many of these health goal apps include extensive features like barcode scanners and support forums.

Noom, a popular mobile weight loss company, had over 50 million downloads as of Jan. 2020 and $237 million of revenue in 2019, up nearly 300% from the prior year. Some of Noom's popularity could be attributed to its use of psychology, cognitive behavioral therapy, and physiology to help members lose weight and achieve wellness goals. These are features that make it stand out from weight loss programs that are more numbers-based.

In all, there is a horde of health, wellness, and diet websites vying for WW's clients. Many of these digital wellness offerings also have community and coaching components -- two features that WW likes to tout -- and they're often more affordable as well.

The cheaper digital program might undermine the studio option

WW's existing and new customers may not trade up for the more expensive studio option once they are accustomed to digital plans. Virtual workshop memberships can cost twice as much as digital memberships (or more), while coaching memberships cost closer to four times more than basic digital programs.

Given continued social distancing and concerns around COVID-19, many consumers are hesitant to return to their old lifestyle habits, and that will likely include in-person workshops too. They'll also be more price-conscious with their spending like wellness programs given the recession and high unemployment rates.

Overall, this consumer-discretionary company faces serious risks to its long-term revenue growth that should keep investors on the sidelines until membership trends turn more favorable.

Pearl Wang has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

WW International, Inc. Stock Quote
WW International, Inc.
$3.73 (-7.21%) $0.29

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/06/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.