VALUATION HIGHLIGHTS

1. Digital Subscriptions constitute 70% of the Trefis price estimate for Weight Watchers International's stock.
2. Studio + Digital Memberships constitute 27% of the Trefis price estimate for Weight Watchers International's stock.

WHAT HAS CHANGED?

Latest Earnings Q3 FY’21

WW International published a slightly weaker than expected set of Q3 2021 results. While quarterly revenues declined by about 8.5% year-over-year to $293.5 million, reported EPS fell to $0.65 from $0.78 in Q3 last year. The declines come on the back of a decline in subscribers for the company's Studio business and Digital operations. The company is guiding revenues of above $1.2 billion for the full year, with GAAP EPS likely to stand at between $0.80 to $0.90 per fully diluted share, including one-time charges.

POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE

Below are key drivers of Weight Watchers’ value that present opportunities for upside or downside to the current Trefis price estimate for WW:

Service

• Total Digital Subscribers: We currently forecast that Weight Watchers’ total digital subscribers will increase from 3.70 million in 2020 to around 5.6 million by the end of the Trefis forecast period. An increase in digital subscribers is expected to be driven by the growing awareness among people regarding wellness and a healthy lifestyle. Additionally, as the number of overweight and obese people worldwide grows, the demand for an effective, scalable, and consumer-friendly weight management program will increase. However, there could be a 10% downside to the Trefis price estimate if Weight Watchers’ digital subscribers grow to only 5 million.


• Services Gross Profit Margin: The Gross Profit margin for WW’s services business has steadily increased from 49% in 2015 to a little over 61% in 2020 primarily driven by improved operating leverage and shift in mix towards the higher-margin Digital business. We forecast the Gross Profit margin to stabilize around these levels through the Trefis forecast period as competition will force WW to charge lower membership fees from its clientele. There could be a 10% upside to the Trefis price estimate if Weight Watchers’ services Gross Profit margin increases to 67% by the end of the forecast period.

For additional details, select a driver above or select a division from the interactive Trefis split for Weight Watchers at the top of the page.

BUSINESS SUMMARY

Weight Watchers offers various products and services to assist in healthy habits, including weight loss and maintenance, fitness, and mindset. WW branded services and products include digital offerings provided through websites, mobile sites, and apps, workshops conducted by the company and its franchisees, consumer products sold direct to consumers, licensed and endorsed products sold in retail channels, and publications.

The core philosophy behind Weight Watchers programs is to use a science-driven approach to help participants lose weight by forming healthy habits, eating smarter, getting more exercise, and receiving support.

SOURCES OF VALUE

Weight Watchers classifies its operations into the following four segments:

North America Continental Europe (CE) United Kingdom Other

We believe North America and Continental Europe are the most important sources of value for the company.

North America is Weight Watchers’ largest division

At the end of 2019, North America reported more than 2.7 million in total subscribers and over 150 million in total weeks paid for its North American Division. With service gross profit margins around 58%, the North America Division generated around $850 million in service revenues for the company. Taken together with product sales and other revenues, the division brought in approximately 70% of Weight Watchers’ total revenues. As the number of overweight and obese people in North America continues to grow, we believe that this division will continue to generate a bulk of the company’s revenue in the long run - making the division the single largest source of value for Weight Watchers.

Continental Europe (CE) is Weight Watchers' fastest growing division

Weight Watcher’s revenue from its CE division has grown at an average annual rate of 12% over the last four years. As obesity and health awareness among people rise, these revenues could grow at a faster rate in the future.

Notably, WW’s total revenue has increased at a rate of roughly 7% annually over the last four years. This has led to a steady increase in the contribution by the CE division to the company’s top line from 18% in 2016 to more than 20% in FY 2019.

KEY TRENDS

Collaboration with Oprah Winfrey has been a game changer

In October 2015, WW entered into a strategic collaboration agreement with Ms. Winfrey, under which Ms. Winfrey granted the company the right to use her name, image, likeness, and endorsement for, and in connection with, the company and its programs, products, and services. Since then, Oprah has played a central role in the company’s marketing campaigns. This is likely to continue to boost the company’s subscribers over the foreseeable future.

WW Freestyle likely to drive future growth

Weight Watchers offer services and products that are based on its new weight management program, known as WW Freestyle. The total recruitment and retention ratio received a boost over 2018-2019 following the successful launch of the program in 2017. WW Freestyle will not only help the company to achieve its mission to focus on overall health and wellness but also drive the company’s growth in the foreseeable future.

Failure to adopt ‘Keto Diet’ will negatively impact recruitment in the near term

The Ketogenic Diet has risen in popularity over recent years. Keto Diet has been scientifically proven to help reverse type 2 diabetes, improve metabolic health, and enable many people to lose meaningful amounts of weight without hunger. However, Weight Watchers has not adopted the Keto Diet in its wellness programs as the company believes it is not a long-term sustainable solution for the weight loss program. Failure of the company to adopt the Keto Diet will adversely impact recruitment in the near term as demand for the Keto Diet surges.