The “Her” effect on Weight Watchers

The last two days have been extremely humbling for me.  Yesterday afternoon I was watching the movie “Her” during the earnings call for Weight Watchers.  As I watched the (fantastic) near-future sci-fi tale of a man falling in love with his artificial-intelligence powered operating system, the management of Weight Watchers  slashed their 2014 profit guidance IN HALF due to pressure from free apps and “wearable fitness” devices.  I suppose the parallel is evident in the un-avoidable trend of people living more and more in isolation with their devices than in the company of fellow humans…despite the common wisdom of what a disaster that will eventually be.   

As one of my larger investment holdings, you can imagine my pain in seeing the stock drop by 27% in a single day.  In my 15 year investing life, I’ve never had a stock move that dramatically in a single day, nor seen management slash their forecasts by 50% from the prior quarter. 

I get the concept of technology disruption and appeal of a cheap app over the financial and time commitment of weight watchers.  But the fact remains that Weight Watcher is more effective than the alternatives and the overall obesity market is growing fast!  Perhaps I’m ignorant to the distinction between what people pay for vs. what actually works, but there’s a big part of me that  wants to believe that ultimately overweight people want and will pay for a program that actually works better than the cheap apps or virtual assistance.

MoMANon spoke recently on his blog about battered brand names and their attractiveness.  I continue to believe that WTW is a prime target given the recent drop.   As the most recognizable brand name in weight loss, there is a floor to WTW’s brand value regardless of their potential incompetence in keeping up with technological trends, not to mention the impact of a new CEO who likely has incentives to set the bar low early in his term.  I’m still a believer that the rapidly growing obesity market and brand power of Weight of Watchers will overcome the onslaught of cheap apps and wearable devices that ” talk the talk” and fail to meaningfully help people lose weight and improve their health.        

-Maverick

 

 

 

  

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2 thoughts on “The “Her” effect on Weight Watchers

  1. Hmmm. Always on the look out for out of favor brands, and WTW has certainly had a rough three years. My worry, (much like JCP) is the turn around has just begun. They are cutting costs now, redoing marketing now. I do like some of the plans, matching WTW with a healthcare plan is smart and a good idea. But I think this one might still have some more time. EPS of 1.45 expected in 2014 on a $20 stock not including severance and other one time charges. I think picking the bottom can be too hard and one might want to wait until there’s some data supporting a turnaround. For stocks like this you can miss the first 20% and still make a great return. When WTW does come back, and it will, there’s a double in here at some point.

    moMANon

    • Great comments, moMANon. You are probably right that this turn around will take some time. One thing that drives me nuts is their choice of celebrity spokespeople. Jennifer Hudson was fantastic, but Charles Barkley? Jessica Simpson (in 2014)?? They need to follow Nutrisystem’s lead and find both male and female spokespeople with broad female (on the older side) appeal. Maybe like a Jonah Hill, Michael Strahan, Racheal Ray, etc. I’ll be watching this new management team closely over the coming months.
      -Maverick

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