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Investment Thesis
WW International (NASDAQ:WW) is a huge and widely respected weight-management brand, although it has failed miserably in adjusting its products to the changing needs of consumers in recent years. The combination of a new CEO, adjusted strategy, huge market opportunity and current low valuation still makes this company a nice buying opportunity.
Introducing WW International
With its headquarters in the United States, WW International, formerly known as Weight Watchers International, is a multinational organization that provides services for fitness, mindset, and weight loss and maintenance, including the Weight Watchers comprehensive diet program.
To help members stay on track with their weight loss and health goals, WW has more than 3,000 brick-and-mortar locations where they can interact with coaches and guides in person. Through its website and mobile app, WW also provides a wealth of online resources and tools for tracking one’s food intake.
The fact that WW is user-directed and customizable is one of its key features. With its new PersonalPoints program, the company continues to adapt to meet clients where they are with customized approaches, which may result in greater engagement and more behavior change than generic approaches. PersonalPoints is a personalized and flexible approach to weight loss.
The company had a rough last 12 months, as its stock almost lost 80% of its value.
Relating to WW International, in this article I will analyze:
- Its historical performance
- Factors boosting future performance
- Valuation
- My overall take on WW International
Historical performance
Year-over-year growth
|
2019 |
2020 |
2021 |
Last 4 Quarters |
|
| Revenue | -6.66% | -2.49% | -12.02% | -8.46% |
| Gross profit | -9.20% | 1.84% | -7.41% | -7.13% |
| Net income | -46.57% | -37.18% | -10.86% | 33.12% |
Source: Seeking Alpha
Margins (% of revenue)
|
2019 |
2020 |
2021 |
Last 4 Quarters |
|
| Gross profit | 55.66% | 58.13% | 61.18% | 61.37% |
| Net income | 8.46% | 5.45% | 5.52% | 6.52% |
| Free cash flow | 8% | 8% | 10% | 10% |
Source: Seeking Alpha
The growth numbers look quite concerning, as the company loses revenue each year for the past couple of years. On the contrary, the margins have increased over time.
The decrease in revenue can be probably mostly attributed to the emergence of new online (free) weight-management resources as well as other strong competitors, such as Nutrisystem. While it’s understandable that COVID-19 had a negative impact on revenue due to the closings of a lot of studios, 2019 compared to 2018 showed a decrease in revenue as well. Before and especially during COVID-19, WW International seems to fail to adjust its products to the more digital and personalized needs of consumers these days. Attempted investments in new tech solutions have seemed to fail. WW International failed hard strategically, which led to the assignment of a new CEO, Sima Sistani.
Sima Sistani didn’t hold back when criticizing her predecessor. In the Q1 2022 Earnings Call, she stated that certain projects initiated in the past required a lot of investments and resources, leading to more distraction but lacking actual returns. An example is Digital 360, an attempt to bring coaching to digital subscribers and attract a younger demographic. It failed in achieving its objectives. Furthermore, she states that the company had become too complex as it invested in too many projects and wanted to do too much.
Sima Sistani had rolled out a new strategic plan and changes, which I will elaborate in the next part.
Boosting factors: A new CEO, adjusted strategy, obesity is and will be a huge issue
New CEO
While the previous CEO was (too?) ambitious, they left a mess at the company.
Sima Sistani has a proven track record of creating strong digital communities and has a solid background working at the nexus of media and technology. Sima is the founder and chief executive officer of Houseparty, a synchronous social network and community that puts a strong emphasis on in-person communication. It expanded into a community with more than 150 million users under her direction. She also oversaw the sale of the company to Epic Games in 2019, where she worked as the Senior Executive in charge of social gameplay and feature development for their video game offerings, including Fortnite. She also held executive positions at Tumbler and Yahoo Mobile.
In conclusion, her proven track record in digital communities and entrepreneurial success seems to give investors new hope, although she awaits a huge challenge.
Decreasing complexity and reallocating capacity
According to the Q1 2022 earnings call, Sima wants to reduce complexity and create a more clear structure in WW International.
The company announced a restructuring on April 22 in order to flatten the organization, reduce redundant workflows, and enhance decision-making. These actions were primarily focused on reducing layers of executive leadership, with VP and above positions decreasing by about 30%.
Furthermore, she wants to narrow the focus of the company, improve capacity, and improve the consumer experience.
While the company reduces capacity in a few failed projects, its team is working diligently to develop a fresh app experience built on the three pillars of coaching, accountability, and community. It might take up to 18 months to complete this process. Although this seems like an intensive process, it would significantly improve the digital experience. Furthermore, to help coaches better serve their members, they’re going to technologically enhance the workshop experience. Despite the fact that people use digital experiences every day, the studio is still a crucial differentiator. Other adjustments are also made in its e-commerce segment.
In conclusion, WW International still wants to hold to its core principles and strengths, while improving its current technologies and digital experience by allocating most of its capacity to adjust a few parts of the company, instead of wanting to do too many different radical changes.
Obesity is and will be a huge issue
By 2030, one billion people worldwide, including one in five women and one in seven men, will be obese, according to the World Obesity Atlas 2022, issued by the World Obesity Federation. Thus, weight loss and management solutions are and will be very much needed. The most important question is, which solutions will be most used by people.
WW International has been one of the most trusted and widely known weight management solutions providers for over 60 years. While it excelled at in-person experience through its studios, it seems to struggle recently to due failing to fulfill the increasingly digital and personalized needs of customers in contrary to the more flexible and newer online resources. The need for a more digitalized experience will probably increase only more in the future. The only way WW International can compete is by effectively digitally transforming its company. I like the idea of the new CEO, who believes that WW International needs to hold to its core principle and strength, its in-person experiences. Contrary to the previous CEO, she knows it’s impossible to set up too many radical digital projects and expect them all to be successful. It sounds like she rather wants to really combine the digital experience with its core in-person strengths, through focusing on a few, but still large improvements such as the improved app, but also improving technology that coaches use.
Of course, these are just ideas, and nothing is proven yet. It’s always easy to romanticize such new ideas. Time will tell whether the adjusted strategy will practically attract both current and new customers.
Valuation and final take on WW International
Valuation of WW International and comparison
| P/E ratio | Price / Sales ratio | Price / Cash flow ratio | |
| WW International | 6.5 | 0.41 | 3.1 |
| S&P 500 | 15.5 | 1.5 | 12 |
Source: Seeking Alpha
WW International has lost 80% of its value in the last 12 months, leading to a relatively low valuation compared to the market. Whether that’s worth it? I do understand that the market doesn’t like the negative momentum in both stock price and sales numbers. However, I do believe that the stock has been punished rather hard. WW International is still a widely trusted and huge brand. The question is whether the new management can turn things around. Even though I think it’s a huge challenge and will take at least 1 or 2 or more years to see the impact, I do believe the new initiatives taken by management could potentially turn things around. I would never pay a high value for such a company as I do think it’s a rather risky investment, but the current lower valuation with a huge long-lasting market opportunity sets up for a very nice upside return potential. Just know that’s a rather risky investment and patience is required.
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