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.