View | Modify | Create | Collaborate
WW International reported a narrower-than-expected loss of $0.26 per share over Q1 2021. The company's digital business saw robust growth, with subscriptions up from about 3.6 million at the end of Q1'20 to 4.2 million in Q1'21. While total revenues declined by about 17% compared to last year to $332 million, due to declines in the Studio business, which has higher per-subscriber billings, adjusted gross margins rose to 59.9%, up from 52.7% in Q1'20, given the thicker margins on the company's digital product.
The Covid-19 pandemic, coupled with a broader economic slowdown, has adversely impacted consumer spending in the wellness and fitness industry. As people stayed home and avoided public places, the company’s studio business - which has higher billings - took a hit, with Studio + Digital subscriptions down from 1.26 million at the end of 2019 to about 0.7 million in 2020. However, the company’s digital member trends remained upbeat, with digital subscribers rising to 3.7 million at the end of 2020, up from less than 3 million a year ago.
Below are key drivers of Weight Watchers’ value that present opportunities for upside or downside to the current Trefis price estimate for WW:
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.
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.
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.
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.
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.
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.
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.
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.