April 16, 2019
Recently, a J.P. Morgan analysts, Christina Brathwaite, claimed that WTW's business was eroding, based on a 40% yoy drop in daily average users of the company's app. This assessment triggered a sell-off and worried investors. However, It is Marketdata's contention that this assessment was reckless and represented a woefully incomplete picture of the company's outlook and prospects. To look at just one metric, for a period of time as small as one week, is simply not valid. A month's data would be better.
This is not surprising, however, since Wall Street is so short-term oriented.
As a 30-year analyst of the weight loss market since 1989, here's how I would assess Weight Watcher's prospects--some metrics I would consider:
- Number of leads generated from: TV commercials, direct mail promotions, print ads in magazines, from word-of-moth referrals, from walk-ins to its 800 leased retail sites - now vs. last year.
- Conversion rates of leads to paying customers, vs. last year
- Number of total visits to ALL its websites (global Alexa rank), and page views, and time spent per visit, and bounce rates, vs. last year. Note: WTW has websites with different extensions for various countries: weightwatchers.com.de (Germany), .au (Australia),.ca (Canada), etc.
- Reactivation rates - past users who re-enrolled. Very important metric. The firm has a database of 10 million past/current users to leverage.
- Sales of WW food items sold via H.J. Heinz, vs. last year.
- Meeting attendance at its 800 retail sites, vs. last year
- Activity at the firm's employer at-work programs.
Only after looking at ALL or most of these metrics can one confidently say how well the company is doing. All of these are just important as DAU, daily avg. users of the app.
And, remember that WeightWatchers.com revenues ($567 mill. in 2018) do NOT represent the company's total operations -- only 37% of it. And, not everyone who joins WW.com uses the app.
Wall Street analysts want to see a turnaround next week, no patience. For those looking at a little longer view, perhaps a few quarters, there is considerable light at the end of the tunnel. The company has been hit with a few headwinds lately that are all short-term issues: the popularity of Keto diets, Noom's entry, and bad winter weather. These too shall pass. And if Noom is so popular, why are they sending out emails with an 80% off deal?
Here's the strategy we at Marketdata recommend for Mindy Grossman and a WTW rebound:
- Don't jump on the shiny object bandwagon: like offering a Keto plan
- Fine-tune the app (add meal planning feature, eliminate logging off bugs)
- Fix the customer service function. Based on tons of negative comments online, it's broken. Refunds refused, automatic billing after a person cancels, problems with customer support people with heavy accents/language issues, rude service people.
- Grow the large healthcare organization business, add more partners like Humana.
- Add video coaching / telemedicine-like Skype feature to make coaching calls more interactive and personalized.
- Develop more program options for different dieters (for mean, seniors, ethnic women, teens, etc.)
- Grow the international business, in Latin America, Asia, Middle East.
- Grow the employer At-work business, where there is a $300 annual potential but WTW only captures $75 mill. of it.
- Seek out some partners in the wellness space (i.e. Wellness Councils of America, National Society of Health Coaches, Wellcoaches School of Coaching, YMCA, holistic institutes).
- Add optional DNA home testing service (like NutriSystem and Jenny Craig)
- Make sure ad campaigns are on-point and stress the company's strengths.
The point here is that there is A LOT that the company can do to improve and grow, and these are all actions under the company's direct control.
Based on the number of comments on user forums, the company has a major problem with customer service. It is NOT following "best practices" online by not canceling subscriptions when asked, giving people the run-around, etc. People are so frustrated that they say they'll never come back. That HAS to be fixed ASAP. On the plus side, most people (probably by a 3-1 margin, rave about their group leaders and coaches, and most people like the app and find it easy to use.
Regarding more program options for different dieter groups, WTW should take a look at history and what made eDiets.com so successful 15-20 years ago. Ediets licensed popular brands at the type and digitized their programs (Atkins, Slim-Fast, Bob Greene, Blood type Diet, Mediterranean diet, etc.). By contrast, WTW offers ONE plan - Freestyle. The other thing that made eDiets popular was the strength of their community feature and multiple forums where clients could meet and support each other. WTW has that already.
Weight Watchers is a large and complex organization, with lots of moving parts. It operates online and off-line. It has significant international operations, not just the U.S. It is a challenge to get all of these parts to function smoothly, all the time. They need some time to digest recent acquisitions and new partnerships. But, Marketdata believes that it can be done, with a little improvement in execution.
In conclusion, to assess WTW's health by looking at one small metric (daily avg. users of the app) for one week's time, is reckless and represents an incomplete analysis by J.P. Morgan. Don't buy into the panic. Longer term investors' patience will be richly rewarded.
Note: For consulting, custom research, or ready-made weight loss market research reports, contact Marketdata or John LaRosa, at www.marketdataenterprises.com or 813-971-8080.