Short: WW International Inc - (NYSE: WW) Helen Huang and Antares Tobelem - Undergraduate ...
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Short: WW International Inc (NYSE: WW) Helen Huang and Antares Tobelem
COMPANY OVERVIEW Engage Undergraduate Investment Conference 2
Company Overview
Business Overview Stock History
120
• WW provides weight management services and products Beats revenue + EPS
• Operates mainly through its digital app and in-person workshops 100
expectations, misses on
subscribers
• Known for its points system when evaluating users’ eating habits Sales + subscriber
declines w/ rise of
Popular PointsPlus
Key Company Highlights 80
program
free apps
Price ($)
Mindy
Revenue by Market Revenue Mix 60
Grossman CEO
UK Oprah
40
7% Product Spokeswoman
15%
CE Studio + 20
21% Digital
US 42%
0
69%
Digital
43%
Key Board Members
3500
-14% (Total EOP)
3000
2500 -10% (Total EOP)
2000
1500
1000
500
0 Mindy Grossman, CEO Nicholas Hotchkin, CFO Oprah Winfrey - Director
'17 Q1 Q2 Q3 Q4 '18 Q1 Q2 Q3 Q4 '19 Q1 Q2 Former CEO of HSN Veteran WW executive WW Spokeswoman
Total Digital Subscribers Total Studio+Digital Subscribers Joined in 2017 Previously Staples 8% Shareholder
Engage Undergraduate Investment Conference 3
Services and Products SERVICES THE APP WORKSHOPS Digital Studio + Digital Coaching PRODUCTS Snacks Kitchen Goods Lifestyle Products ENGAGEMENT Dance Parties Cruises New Workshop Locations Engage Undergraduate Investment Conference 4
INDUSTRY OVERVIEW Engage Undergraduate Investment Conference 5
Industry Overview
Weight Loss Industry Trends Industry Statistics
Highly fragmented – many internal and external • Expected annual growth rate of .5% over next four years
competitors with free apps and fitness programs • US is largest global market at around $17B
• America has greatest need and the most means (WHO 12)
• Women and older individuals (55+) are usual consumers
Relies on marketing to cater to constantly • But there may be untapped markets in men and YAs
changing customer tastes
Stock Price Trends
Growing TAM because of obesity trends, aging
population, opportunities for expansion
Rise in health consciousness and increased
focus on “lifestyle” services
Generally seasonal and volatile
Engage Undergraduate Investment Conference 6
Industry Overview
Industry Tailwinds
• Celebrity influence and viral stories can
strongly influence company growth
• Increased health consciousness means
customers may view these services more as
“lifestyle” products to use consistently
• Increasing obesity rates and aging
populations increase the industry’s TAM
• Popularity of digital/app-based services
allows for easy entrance to the space
Industry Headwinds
• Industry seasonality and marketing uncertainty
• Reimagined fitness Classes (active vs passive
fitness) can take advantage of in-person
benefits
• Home fitness equipment gaining popularity
• Many free, effective health and wellness apps
• Weight loss procedures are becoming cheaper
and safer
Engage Undergraduate Investment Conference 7
INVESTMENT THESIS Engage Undergraduate Investment Conference 8
Risky Transition to Digital – Increasing Digital Subscribers
Q2 2017 Q2 2018 Q2 2019
Product Product Product
17% 16% 15%
Decreasing growth in WW’s EOP Studio Studio + Studio +
Studio + Digital Digital
+ Digital segment harms its important Digital 47% 42%
Digital 50% Digital
weight loss community. 33% 37%
Digital
43%
• Digital subscriptions gained an
additional 10% of revenue mix in the
past 2 years
• Studio + Digital is struggling
• YoY digital growth has been
positive for every market
• YoY S+D growth has been
negative for every market
• True for both subscriber numbers
AND paid weeks
Engage Undergraduate Investment Conference 9
Risky Transition to Digital – More Expensive Growth
• The market really only cares about 2 things: Next, let’s discuss subscriber growth
1. Revenue Growth
• To maintain revenue growth, WW needs large
2. Subscriber Growth
digital subscriber growth
First, let’s discuss revenue growth • Digital growth depends on:
$19.95/month Digital – access to the app • Marketing – inform target audience of potentially
more convenient weight-loss method (WW app)
$44.95/month Studio + Digital – workshops & app • R&D – sustain interest in the platform
$54.95/month Coaching – personal coach & app • In a word: expensive
But this leads to some complications… 70.0%
60.0%
• Debt limitations 50.0%
• Under WW’s 2017 Credit Agreement, a substantial percent of 40.0%
FCF must be used to pay down $1.5B term loan 30.0%
• This limits WW’s ability to pay for the projects necessary to 20.0%
drive growth (described above)
10.0%
• Margin compression 0.0%
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
• Increased CAC expected to compress margins Gross Margin Operating Margin
Engage Undergraduate Investment Conference 10Risky Transition to Digital – Undifferentiated Product
A transition to digital exposes WW to significant competition
from free health apps.
• Digital health applications - saturated space
• WW’s app is largely undifferentiated
• User frustrations:
• WW users need to use multiple apps to track points, calories, macros
• Problems with undifferentiated app model
1. The main barrier weight-loss consumers face is self-motivation
2. Price is the most influential when buying health and wellness
products
All for a potentially less valuable digital customer…
1) As fewer people show up to 3) Workshops also serve as another
2) Workshops introduce a social factor
workshops, the workshop experience selling platform for product sales, so
that can retain and recruit customers
may become less impactful fewer workshop
who have many
and workshops may eventually be attendees will adversely impact
friends who attend workshops.
discontinued. product sales.
Engage Undergraduate Investment Conference 11Limited Growth Opportunities – Suffering Brand Loyalty
Brand loyalty is suffering
• Alienation of their core customer market by introducing
new, non-traditional spokespeople
• E.g. Kate Hudson
• Searches for “keto” diets have soared as one of many
potential substitutes for WW programs
• Online message boards have created independent
spinoff communities similar to Connect
• Digital lacks the loyalty created by in-person experiences
• Changes and additions to their systems every 1-2 years
has bred confusion, exhaustion, and predictability
• Frustrated users
• WW removed “weight” officially from their name, but
many still feel like the programs are weight-obsessed
rather than body positive
• Unsuccessful rebranding in 2018
Engage Undergraduate Investment Conference 12Limited Growth Opportunities – 2019 Q1 Invalidated Innovation
Innovative programs failed during 2019 recruitment… may happen again
WW MSC Cruises WW Fitness Classes/Parties Workshop Engagement Adjusted Marketing
• Limits audience to wealthy • Limits audience to prime- • Only reaches the highly • Always a hit or miss
customers aged women enthusiastic • Kohl’s partnership may be
• Purchased too infrequently • Only reaches the • Invite a friend, Open Houses, an expensive capital drain
intrinsically motivated Attendance Challenges, tying WW to another
• Class Pass Studio Revamps, yet still a declining brand
studio + digital decline
Engage Undergraduate Investment Conference 13Limited Growth Opportunities – Ineffective Partnerships/Acquisitions
Kurbo, Kohl’s Partnership, and Blue Apron have
seen limited growth
• Kurbo
• Digital app acquired for $3M for children
• Encourages better eating and lifestyle habits to tackle
childhood obesity
• Stoplight methods instead of calorie counting
• Huge backlash from public, recommended with physician
guidance
• Kohl’s
• Opening studios in Kohl’s locations
• News generated barely any move in stock price
• Kohl’s is not a brand investors seem willing to stand behind
• Blue Apron
• Again, a declining brand struggling to stay relevant
Engage Undergraduate Investment Conference 14Risks and Catalysts
Risks to Short Recommendation
Successful Rollout of 2020 Innovation Plan
1 • 2020 Innovation Plan focused on
personalized and on-demand platform
improvements may drive user retention
and recruitment.
Turnaround by Capable Management Team
2 • CEO Mindy Grossman has a history of being able to
dramatically improve brand image and sales (HSN, Ralph
Lauren- Chaps, Nike, etc.)
• Since she became CEO in 2017, she has been able to drive
short-term growth (reflected in 2018) but the industry as a
whole was doing well in 2018 as well and the WW stock has
since struggled
High Levels of Stock Volatility
3 • Previous Q2 performance triggered a ~30% surge in the
stock price
• In the low possibility that WW beats expectations, the
stock could rise significantly
Engage Undergraduate Investment Conference 15Risks and Catalysts
Catalysts for Investment
2019 Q3 Earnings Release
1 • Value Already Realized: In the past 3 months, WW stock has
surged almost 70% due to strong investor optimism after Q2.
• High Uncertainty and Volatility: Investors are already
skeptical of WW’s long-term sustainability for user growth.
• Disappointing the Street’s expectations will result in a drastic
negative price reaction.
Poor 2020 Recruitment Cycle (2020 Q1)
2 • Hit to Market Confidence: In the likelihood of a poor 2020
recruitment cycle, the results could significantly plummet
the volatile stock and reaffirm market’s uncertainty in WW.
• Health Fads and Changing Consumer Tastes: Without a
decent moat, WW can be severely hurt by new substitutes
and the heated competition.
Economic Downturn Vulnerability
• Weight-management services are discretionary expenses, so WW
3 is highly exposed to economic slowdowns.
• WW is increasingly capital intensive to educate and engage, so
limited profits during recession may hurt future subscriber
growth.
Engage Undergraduate Investment Conference 16VALUATION Engage Undergraduate Investment Conference 17
Comparables Analysis Engage Undergraduate Investment Conference 18
Valuation – Discounted Cash Flow Analysis Engage Undergraduate Investment Conference 19
Valuation – Discounted Cash Flow Analysis Engage Undergraduate Investment Conference 20
The Bottom Line – Too Much Can Go Wrong
• Investors are looking for evidence of steady subscriber and revenue growth
• They’re wary of the industry and WW’s sustainability, so any sign of decrease here will severely affect WW’s stock
• But the costs needed to maintain that growth will increase over time
• Marketing, research and development, fighting competition in the digital space
• Because mix shift to Digital creates greater financial pressure on the leveraged company
• Lower revenue growth per subscriber leads to need for overcompensation
• Recession fears will exacerbate pressure
• At this point, too much can go wrong for WW
• Not to mention, opportunity for growth is limited
• After a strong Q2, expectations will be high for Q3
• 2020 Innovation Plan will likely not generate the growth needed for investors to believe in WW again
Our recommendation is a SELL on WW
Engage Undergraduate Investment Conference 21Thank you!
Any Questions?
Engage Undergraduate Investment Conference 22Appendix
Valuation – Revenue Assumptions Engage Undergraduate Investment Conference
Valuation – Revenue Assumptions Engage Undergraduate Investment Conference 25
Valuation – Income Statement Engage Undergraduate Investment Conference 26
Valuation – Revenue Build Engage Undergraduate Investment Conference 27
Valuation – Revenue Build Engage Undergraduate Investment Conference 28
Valuation – Balance Sheet Engage Undergraduate Investment Conference 29
Valuation – Cash Flow Statement Engage Undergraduate Investment Conference 30
Valuation – Sensitivity Analysis Engage Undergraduate Investment Conference 31
Primary Research
“All the zero point foods were not my friend as “Freestyle works for some, but for others it
I have no portion control abilities” has been somewhat of a disaster”
“I was on board, full steam ahead, enthusiastic and highly motivated. I made it all the way
through to goal and lifetime. I've always been a little sad that in each subsequent plan
with weight watchers that I never felt that same enthusiasm ever again.”
“She went with [Jenny Craig] because she “Fire sale [of old products] here too… the new
didn't want to have to "think" about what she program is probably rolling out in November”
was going to eat from meal to meal” [WW has become too predictable]
Engage Undergraduate Investment Conference 32Appendix – Ownership
Source: FactSet
Engage Undergraduate Investment Conference 33You can also read
