Down 75% This Year, What’s Next For WW International Stock?

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Upside
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WW: WW International logo
WW
WW International

WW International (NASDAQ:WW) stock has fallen by close to 8% over the last month and remains down by 77% year-to-date. It has been a perfect storm of sorts for the stock. The big health and fitness focus seen through the Covid-19 lockdowns has eased, impacting demand for weight management services. Investors are also no longer valuing WW like a technology play as its digital business, which grew quickly through the pandemic, is seeing the subscriber base contract. At the end of Q3 2022 digital subscribers declined by 17.7% versus last year, to 3 million. Competition in the weight management space is also mounting. One one side, social media influencers are playing a bigger role in the space, while pharmaceutical companies are also making progress with weight management drugs. WW is quite highly leveraged, with total debt standing at over $1.4 billion, which is a concern in a rising interest rate environment.  The company also doesn’t seem to be positive about its near-term outlook.  It recently reduced its full-year revenue guidance to about $1.04 billion, down from its prior range of $1.05 billion to $1.09 billion.

We have a $6 per share price estimate for WW International stock, which is well ahead of the current market price of about $4. We think there are some reasons to remain positive about the stock at current levels. The risk-to-reward trade-off for WW appears a bit more favorable, with the stock trading just about 0.3x forward revenue, down from levels of about 2.5x in mid-2021. While the low multiple is largely due to the projected decline in revenues, the company has also been fairly consistently generating free cash flows and this is a positive. WW is taking steps to shore up demand, as it looks to build a diabetes-focused business, while also rolling out a program called PersonalPoints, which completely customizes weight loss plans for each member. The company has also been undertaking several cost-cutting measures, cutting down on the variety of consumer products while phasing out poorly performing services.  This could help the company shore up its profitability to an extent. 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 revenue streams, and how they have been trending.

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 Returns Dec 2022
MTD [1]
2022
YTD [1]
2017-22
Total [2]
 WW Return -7% -76% -67%
 S&P 500 Return -7% -20% 69%
 Trefis Multi-Strategy Portfolio -5% -22% 215%
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[1] Month-to-date and year-to-date as of 12/17/2022
[2] Cumulative total returns since the end of 2016

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