Is WW International Stock A Buy At $16?

WW: WW International logo
WW International

WW International stock (NASDAQ: WW) has declined by close to 60% from its highs of about $40 per share seen in June to about $16 per share currently.  WW stock has been on a weak footing with the company posting tough earnings over the last two quarters, with its digital subscriber base seeing growth cool-off over Q2 and actually declining by about 3% year over year during Q3. As the company focused on its digital business through the pandemic, investors were beginning to value the company as a technology play of sorts. However, with the Digital business faltering, investors are likely reassessing this stance.  WW International’s Workshops + Digital subscribers have also continued to trend lower, despite the easing of Covid-19 restrictions and the reopening of physical spaces.

So is WW International stock still worth looking at after this big sell-off? Although we’ve recently reduced our price estimate for WW International to about $24 per share, from a previous estimate of $28, our estimate is still almost 50% ahead of the current market price of $16. WW stock trades at just about 15x our projected 2022 earnings for the company. We think this is good value, considering the company’s well-established brand, which is synonymous with weight management. While growth is obviously a concern at this point, we think that the risk-reward positioning of the stock at current levels looks attractive. Moreover, with the Federal Reserve indicating multiple rate hikes in 2022, it’s very possible that value stocks could gain some traction. See our analysis WW International Valuation: Expensive or Cheap for more details on WW’s valuation and comparison with peers. Check out our analysis on WW International Revenue: How does WW Make Money for an overview of WW’s business model, key revenues streams, and how they have been trending.

Below you’ll find our previous coverage of WW International stock where you can track our view over time.

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[8/12/2021] WW International Stock Drops 25% On Tough Outlook. Time To Buy?

WW International (NASDAQ: WW)  dropped by close to 25% in Wednesday’s trading, after the company published a weaker than expected set of Q2 2021 earnings and provided a tough outlook for the rest of the year. While quarterly revenues declined by about 6.5% year-over-year to $311 million, reported EPS fell to $0.13 from $0.21 in Q2 last year.

Although the year-over-year sales declines were partly due to the tough comparison with Q2 2020 when the Covid-19 lockdowns were first imposed, the company’s subscriber base also declined from around 5 million in Q2 2020 to about 4.9 million. While subscribers for the studio fell almost 30% year-over-year, as customers continued to stay away from brick and mortar locations, the slowdown in digital subscriber growth appears to have spooked investors, who were increasingly valuing WW as more of a technology play. The digital subscriber base grew by just about 6%, down from around 16% over the last quarter.

For the full year, the company expects revenues to come in at about $1.3 billion, with reported EPS expected to stand at between $1.10 to $1.25, including restructuring charges and the impact of early extinguishment of debt. Both numbers were below estimates. The company’s guidance came as a bit of a surprise, as the outlook for the weight management space is actually quite bright, as people are looking to get healthier and shed extra pounds gained through the Covid-19 lockdowns. It’s possible that higher competition, from app-based competitors in the weight management space, is impacting WW, translating into slower growth, higher customer churn, and related costs.

We are cutting our price estimate for WW International from around $37 per share to about $29 now (roughly 23x our projected 2021 EPS), given the tougher outlook and competition. That being said, our price estimate for the company is still about 18% ahead of the current market price, due to the company’s relatively attractive valuation, well-established brand, which is synonymous with weight management, and possible upside from digital sales. See our analysis Weight Watchers (WW) Valuation: Is WW Stock Expensive Or Cheap? for more details.

[7/23/2021] Is WW International Stock Good Value At $30?

WW International stock (NASDAQ: WW) has outperformed this year, rising by about 32% since early January, although it has corrected a bit over the last month. In comparison,  the S&P 500 is up by about 18% over the same period. So is WW stock good value at current levels of around $30 per share? We think it is for a couple of reasons. Firstly, WW International appears to be a good play on the post-Covid re-opening in the U.S. With over half of the adult U.S. population now vaccinated, the company’s  Studio business – which accounted for almost 43% of its sales in 2019 and saw a significant decline in business over 2020 – is likely to start witnessing a gradual recovery. WW’s digital business has also seen solid traction through the pandemic, with digital subscribers (who primarily access services via an app) jumping 16% year-over-year to a record 4.2 million at the end of Q1 2021. Moreover, demand for weight loss services, in general, could also pick up, as about 61% of adults in the U.S. gained weight through the Covid-19 related lockdowns over the last year, per a report from the American Psychological Association.

The fundamental picture for the company looks good. Although revenues are expected to remain roughly flat this year, we expect sales to grow by over 7% in 2022 as both the digital and brick-and-mortar business pick up. Moreover, margins are also likely to trend higher, considering the company’s digital transition. For example, in Q1, adjusted gross margin rose by over 700 basis points year-over-year to 60%. WW stock still trades at a relatively conservative 18x 2021 EPS, based on our estimates. Considering that roughly half the company’s revenues came from the digital business over the last year, there is scope for multiple expansion if the company is eventually valued more like a tech business. See our analysis Weight Watchers (WW) Valuation: Is WW Stock Expensive Or Cheap? for more details on our stance on WW stock.

[5/10/2021] Will WW International Stock Continue To Trend Higher?

WW International stock (NASDAQ: WW) rallied by almost 28% over the last week (five trading days), compared to a gain of just about 1% on the S&P 500, after the company published a narrower than expected quarterly loss for Q1 FY’21 while noting that its digital subscribers (who primarily access services via an app) jumped 16% year-over-year to a record 4.2 million at the end of the quarter. The stock also benefited from upgrades from multiple brokerages.  So is WW International stock set for further gains or is a correction looking more likely from current levels? Based on our machine learning model, which analyzes multiple years of historical stock price data, WW stock has a 58% chance of a rise over the next month (21 trading days). See our analysis WW International Stock Chances Of Rise for more details.

So what’s the outlook like for WW International stock in the medium-term? Revenue should continue to pick up, considering that people have been spending more time at home over the last year due to the Covid-19 related lockdowns, with limited movement and possibly less restricted diets, potentially increasing demand for weight loss services. Moreover, the company’s increasing pivot to digital services is also likely to help. As of Q1 2021, about 84% of the company’s subscriber base was on its Digital platform, up from 72% last year. Now although overall revenues have declined due to the digital shift, given that the company’s Studio business (which involves in-person meetings) sees higher billings per subscriber, the Digital operations have thicker margins. Over Q1 FY’21, the adjusted gross margin rose to 59.9% in Q1 2021, up from 52.7% in the prior year.  WW International’s valuation multiple also looks relatively reasonable for a company in the midst of a significant digital shift, with the stock trading at about 20x consensus 2021 earnings and just about 16x consensus 2022 earnings.

[4/20/2021] What To Expect From WW International’s Q1 Results?

WW International (NASDAQ: WW) is scheduled to report its Q1 2021 earnings in the next few weeks. We expect Q1 2021 revenues to come in at about $335 million, slightly ahead of the consensus estimate of $332.6 million, with the company likely posting a loss per share of about -$0.23, compared to -$0.24 per the consensus. While revenues are likely to increase sequentially, driven by seasonality, they are likely to decline by about 16% year-over-year, driven by declines in the Studio business (subscriber base was down -42% in Q4 2020), with people staying at home and avoiding public places due to Covid-19. However, this should be partly offset by continued growth in the digital business. Over Q4 2020, WW’s Digital subscribers grew 24% year-over-year and digital subscriber adds actually helped total memberships grow 4% year-over-year.

While WW Stock rallied by over 50% since the beginning of the year to levels of around $36 in March, it has corrected since then to about $28 per share partly due to mixed commentary from brokerages. That said, we think WW Stock remains a relatively good value at current levels, trading at just over 18x our projected 2021 EPS for the company. The stock should see meaningful gains if the company beats expectations over Q1 and continues to make headway with its digital push. Our interactive dashboard analysis on WW International Pre-Earnings has additional details.

[12/30/2020] Why Has WW Stock Declined Despite Its Digital Transition? 

WW International (formerly known as Weight Watchers International) stock remains down by about 30% year-to-date and has declined by close to 15% in December. While the company’s business has been impacted by Covid-19 (Revenue over the first nine months of 2020 was down by about 3%) its Digital business has picked up much of the slack. As of Q3 2020, WW’s Digital Revenue was up 23%, with Digital helping the company’s total memberships actually grow 5% year-over-year.  While the markets usually reward companies that digitalize and move to asset-light business models, WW International has been an exception, so far. Why is this?

This could potentially be due to concerns of higher competition.  While the weight management market has always been quite fragmented, the trend of digital-first companies focused on helping people manage their health is growing. For example, the weight loss app Noom – which uses artificial intelligence tools and human coaches – has grown quickly. As of early 2020, it had over 50 million downloads (likely mostly non-paying), and its revenue nearly quadrupled over 2019 to $237 million. WW International, with its Studio and Digital business combined, had under 5 million subscribers as of the last quarter. Another digital health app, Lifesum, which has about 45 million users globally, has teamed up with Amazon to bring its coaching features to the new Amazon Halo fitness offering. Considering this, investors are likely skeptical whether WW International – which has been around for over fifty years – can compete in this space in the long run.

[11/30/2020] Weight Watchers’ Digital Transformation

While WW International (formerly known as Weight Watchers International) has seen its stock recover significantly from lows seen in March, it remains down by about 15% year to date. This is in contrast with the broader S&P 500 which is up by about 13% over the same period. The decline is driven primarily by lower Revenues at the company’s Studio business (43% of total revenue mix in 2019), which was impacted as people stayed home and avoided public places due to Covid-19 lockdowns. Separately, a Q3 earnings miss has also impacted the stock to a certain extent. That said, WW International’s performance on the Digital front has been solid. Digital Revenues grew by about 23% in Q3 and were up by 18% over the nine months ended September 2020. In fact, total memberships rose to 4.66 million, an increase of more than 5% year-over-year led by growth in the digital space. As the company transitions from a brick and mortar business model to a more digital-first model, earnings should also improve.  For instance,  in Q3 gross margins expanded to 59.2%, up from about 55.8% last year, while Operating Margins also expanded by about 170 basis points.

See our analysis on What Drove 33% Decline WW International Stock Over The Last 3 Years? for more details on what’s driving the company’s performance and valuation.

While the markets have generally rewarded companies that have digitized and moved to more asset-light business models, WW International hasn’t benefited from this yet. The company’s valuation looks attractive, trading at about 18x consensus 2020 EPS and 14x consensus 2021 EPS.  Considering this, we think the stock could have some upside in the near-to-medium-term. Sure, the weight management market is getting highly competitive given the slew of weight management apps and activity trackers, but considering WW International’s established brand, attractive valuations, and robust digital growth, the stock could offer upside with a reasonable margin of safety for investors.

[9/21/2020] Despite 75% Jump, Weight Watchers Stock Has Scope For More

Despite a 75% rise since the March lows of this year, at the current price of around $20 per share we believe Weight Watchers stock (NASDAQ: WW) has more room to go. Weight Watchers’ stock has rallied from $11 to $20 off the recent bottom compared to the S&P which moved 48% over the same time period. Strong growth in the digital business, with digital subscribers reaching an all-time high in June as well as gradual re-openings of studio locations, has led to the stock beating the overall market. However, the stock is down 55% from levels seen in early 2018, over two years ago. Additionally, the company’s stock is down nearly 48% to the figure it was at in February before the drop due to the coronavirus outbreak becoming a pandemic. Despite the steady rise since the March 23 lows, we feel that the company’s stock still has potential as it will see an upswing in its studio business as the situation normalizes and its valuation implies it has further to go. Our dashboard ‘Why Weight Watchers Stock moved -55%?’ provides the key numbers behind our thinking, and we explain more below.

Some of the stock price decline over the last two years is justified given that the company’s earnings per share figure has shrunk nearly 30% due to a sharp reduction in margins. Moreover, a 4.4% increase in share outstanding further contributed to this share price decline. Notably, though, the company’s revenues have seen a healthy 8.1% growth between 2017 and 2019.

Finally, Weight Watchers’ P/E multiple expanded from 17x at the end of 2017 to 22x by the end of 2019. While the company’s P/E has decreased to 11x, it seems to be undervalued when the current P/E is compared to levels seen in the past years – P/E of 22x at the end of 2019 and 17x as recently as late 2017. We believe the stock is likely to witness a steady upside despite the recent rally and the potential weakness from a recession-driven by the Covid outbreak.

How Is Coronavirus Impacting Weight Watchers’ Stock?

The outbreak of Coronavirus has rattled the stock market and the broader economy. The 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 high-margin studio business took a hit. This was evident from the fact that the company saw a 27% decrease in the studio revenues while the company’s digital business remained robust, with digital revenues surging by more than 13% in Q2 2020 earnings (ending June). Further, the company’s digital member signup trends have remained upbeat, with digital subscribers reaching an all-time high of 3.9 million. Moreover, Weight Watchers has a strong retention rate, which is likely to mitigate the impact on the company’s top line. Despite a strong retention rate and a robust digital business, we expect Weight Watchers’ revenues to witness year-over-year declines in 2020 due to the steep fall in its studio business. To sum things up, although Weight Watchers’ revenues are likely to be lower in FY’20, Weight Watchers’ stock currently seems undervalued due to its upbeat digital business and a strong retention ratio.

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Returns Dec 2021
MTD [1]
YTD [1]
Total [2]
 WW Return -25% -34% 41%
 S&P 500 Return 1% 26% 111%
 Trefis MS Portfolio Return 0% 45% 288%

[1] Month-to-date and year-to-date as of 12/16/2021
[2] Cumulative total returns since 2017

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