WW International's purpose is to, ‘…inspire lasting weight loss through behavior change, nutrition science, and real connections…’ while never giving up the food you love.
WW International, the company formerly known as Weight Watchers International, has been written off for dead. The stock hit all-time lows late last year, breaking under $4 for the first time ever, an over 95% haircut from its 2018 levels when it traded in the triple-digits:
WW International used to be known for its weekly in person meetings to help keep members accountable to their weight loss goals and to celebrate victories, and it worked. Covid put a halt to those face-to-face meetings and forced WW International to pivot to Zoom virtual meetings. WW International saw an initial membership surge during Covid, but has since returned to a declining member base outside of last Quarter. So why do I think WW International is headed much higher?
Before I give my Bull case on WW International, I think it is important to give some context using comparisons of some previous market leading companies who failed to adapt/pivot/change. Let me start with some comparisons:
Blockbuster: The company thought it was immune to change and failed to see/imagine the future. It thought its brick and mortar business would never be disrupted. Instead of embracing the DVD to home and the streaming business, it sat on its hands. A $200 billion dollar mistake… that is the current valuation of Netflix ( $NFLX ) .
Sears/Kmart: Sears, the 100 year old company, was the largest retailer in the U.S into the early 1990s. Kmart, was on its heals for most for the 70’s/80s/90’s, before Walmart passed it in 1990. These multi-billion dollar companies failed to see the impending impact from the Internet. They were late to embrace the change that came from the likes of Amazon and then they went the way of the Dinosaur, albeit later then it should have. Eddie Lambert took control, merged them, and then painstakingly extracted their assets for his gain.
MySpace: Do I even go there? A simple change allowing users to have a visible profile may have saved them. Instead, a site that had over 100 million users at one point, is now the center of jokes. META is a $770 billion dollar company. Twitter was acquired for $44 billion. An $800 billion dollar mistake/miss.
My point is, companies that live in the past and refuse to look to future, tend to fail. And those that do, tend to fail on a grade scale… billions of dollars. Which leads me to WW International. It is a company that has struggled over the past decade with the advent of social media, meal programs(APRN), online exercise platforms(PTON), in studio exercises programs, ect. There are more excuses to not have a WW membership than to have one. And then there is an insane amount of competition from folks like Medifast, Nutrisystem, Noom, and many others. So why in the heck wold anyone be bullish the company and its future prospects? In short, I think it will be able to leverage its brand name and 60 years of lapsed member base to reinvigorate its business as it updates itself into the digital/virtual age and embraces new solutions, including GLP-1… I truly think it is best positioned to take advantage of new weight loss solutions. In a nut shell, it will be its gateway for providing support, mentorship, diet/exercise programs, and a community of like mind individuals on the same journey to weight health.
There are a few reasons why I think WW International is set to embark on a massive rally:
Leadership:
Great companies have great leaders. It goes hand in hand. WW international has not had that the past decade. Mindy Grossman was the last CEO and came on to try to stem the tide of a declining membership base using her playbook from her HSN (Home Shopping Network) days. Meaning she tried to use celebrity clout. This time it was Oprah Winfrey. It brought with it publicity and a boost in membership but it was short-lived. What it needed was someone with a fresh outlook. Someone with experience embracing the new digital landscape. Someone with vision who was ready to make hard decisions. That someone was Sima Sistani. Sima was co-founder of Houseparty in 2016, a face-to-face social network. She sold it to Epic Games in 2019 for over $35 million and stayed on with Epic until she became CEO of WW in March of 2022. She had success using WW in the past and actually contacted WW about a role in the company a few years ago. Once the CEO role became available, they reached back out to her and the rest is history. Sima says she accepted the role to 'help WeightWatchers bring its traditional in-person communities online.’ . If you listen to her speak on any of the earnings calls or her interviews, you hear a person with a clear vision/plan for the company. One who is ready to embrace the future instead of living in the present or past - like previous leadership. As a footnote, they also added William Shrank, a former Chief Medical Officer of Humana, to their Board of Directors in August.
The Pivot:
WW was always known to shy away from any non-traditional weight loss solutions… ie. drugs. The in-person meetings was also a big part of their business model. But the weight-loss environment landscape has changed. People are getting weight loss programs on social media. There are also videos on TikTok and from celebrities showing the benefits of GLP-1 drugs for weight loss. WW International could either stand pat with their current program or evolve. Sima made the hard choice for the latter despite possibly alienating some of the existing member base. WW International acquired Sequence, a digital health platform for clinical weight management, giving them the ability to provide WW members with clinical solutions. They have also cut back on their in-person meeting locations that once numbered over 3,000 and are nearing 800 now, while also announcing they were getting rid of their products line. Despite the sequence acquisition and the scale back on in-person locations, WW actually saw its first intra-year quarter over quarter gain in members in its history in Q2. And that was with less advertising spend and without including sequence members. Validation that these moves have not alienated the existing base. It will take time to see if the pivot really pays off but in my opinion, this was a blockbuster moment for WW - pivot or die. It chose pivot.
The Market Opportunity:
It is a fact there is an obesity problem in the U.S.. As per the CDC, 40% of the population is obese. More than 1 in 10 Americans have Type 2 Diabetes. Heart disease is the leading cause of death in the U.S.. I can go on and on. The total addressable market for a solution to these ailments/diseases is incalculable. The cardiovascular disease market is nearly $200 billion on its own. The global weight loss market as a whole is estimated to be near $250 billion and estimated to grow to over $400 billion in 2030. WW is in some, and can be at the center of all those markets, in the coming years because of their pivot. There is no other company out there right now that can take a 60 year old iconic name brand and couple it with solutions for ones overall health the way WW International can. WW International has went from just a company that provides a diet plan and support community for ones weight loss journey, to one that can still do that but offer support/prescription procurement for GLP-1 drugs. This can be validated by a release on September 22nd, 2023 from Michigan’s Blue Cross/Blue Shield:
In a nutshell, the Blue Cross/Blue Shield of Michigan will require members to provide proof of 6 months of lifestyle intervention/modifications before being approved for any weight loss therapy. They cite WW International as one such program. Since WW can provide the 6 months of intervention AND the prescriptions as a provider, they become a one-stop shop. I think this is just the tip of the iceberg and will have a domino effect as other insurers follow suit. Who will need advertising when every insurer will push their members into the WW ecosystem? Not only that, WW will provide the ongoing support someone needs while on a GLP-1 drug as opposed to most doctors, who offer little to no follow-up. It is a win/win for WW International and a win/win for those looking to improve their weight health. So in a nutshell, the market opportunity for WW International is huge:
What is the valuation of WW when it becomes the preferred program for insurers?
What is the valuation of WW when GLP-1 drugs are found to reduce addiction?
What is the valuation of WW when GLP-1 drugs are approved to treat cardiovascular events?
…huge.
Before it was a weight loss company, now it is a weight health company. Have to think eventually it will be an overall health company encompassing not only weight, but diabetes, cardiovascular, and even addiction. Before they were limited by physical meeting locations, now the amount of their member base is limitless as it shifts to a mostly virtual format. WW International can also then leverage their 60 years of lapsed members to try and get them back into the WW ecosystem. How many of the lapsed members failed because they didn’t have the mental fortitude to keep on track with a diet plan? GLP-1 can be the answer.
I can go on with more reasons I like WW International in the coming months and into 2024, but I’ll save it for another time.
In summary, I think WW International is in the midst of a major turnaround and will reap the rewards of pivoting at the right time into a tremendous market opportunity. They have already said on their Q2 earnings call they have seen parabolic growth in their Sequence members, and that is with GLP-1 supply issues. Have to think once supply comes online, there will be triple digit growth there. And then once New Years resolutions kick-in, look out.
The company is trading at $11 as I write this with an $870 million market cap while doing $942 million in revenues and holding $1.4 mil in debt(net cash) The debt is some of the reason it trades down here. For those concerned about a debt raise, this is from their most recent filing:
‘We currently plan to meet our long-term debt obligations by using cash flows provided by operating activities and opportunistically using other means to repay or refinance our obligations as we determine appropriate.’
I think this also creates opportunity. The stock is up 182% so far YTD as the market starts pricing in the turnaround. I think it has much more room to go, especially if there is any hint of accelerating growth on their earnings call in late October or Early November. Call me crazy, but I can see this trading into the $30s into 2024 and higher into the spring of 2024 - $35.80 would only be 3x’s revenues. I also think many out there are dismissive of WW and think it is just some archaic brand that is eventually going to disappear. It is only a matter of time before folks start catching onto the story and opportunity in front of it.
Just a disclaimer: I currently hold October and January calls and may sell or add more at anytime.
Happy Trading!
- JB