WTW - Weight Watchers International

[thefatbaboon]

I think the moat is the face to face meetings. Might i be wrong? yes. This is an 8% position for me and i've been slaughtered (bought at $32) but i still think that the face to face meetings are the ultimate way to lose weight , which is their core business model. apps, social networking just aren't as effective.

 

I agree with you in a way.  The meetings are effective, one of the only effective methods available.  And Weight Watchers are the meeting brand with all the "share of mind".  So Weight Watchers seem to own the only effective weightless tool.

 

But what the hell is wrong with attendance??  Why does it keep going down?  Ive looked at the last 8 years and over that time attendance has gone for 60m to 43m.

 

 

[ukvalueinvestment]

I don't see how the meetings can be called a moat when they've gone down by nearly 50% over nearly a decade.

 

This moat is drying up rapidly.

[ukvalueinvestment]

33%, sorry.

[Guest hellsten]

I agree with you in a way.  The meetings are effective, one of the only effective methods available.  And Weight Watchers are the meeting brand with all the "share of mind".  So Weight Watchers seem to own the only effective weightless tool.

 

But what the hell is wrong with attendance??  Why does it keep going down?  Ive looked at the last 8 years and over that time attendance has gone for 60m to 43m.

 

IMO, it's probably a combination of many things:

- people weigh-in on weightwatchers.com and/or the mobile app: http://www.coffeecakeandcardio.com/2012/11/06/weight-watchers-online-and-week-3-weigh-in/

- people pay, but don't attend because of other reasons (e.g. middle class has less free time?, bad marketing?)

- there are more alternatives to WTW, e.g. mobile apps

 

The comments on SD are usually more interesting than the articles:

http://seekingalpha.com/article/2066993-weight-watchers-most-people-pay-and-dont-go

 

This user shared some interesting ideas:

http://seekingalpha.com/user/19891241/comments

 

The 33% drop in attendance might mean something. I'm not sure what. Most people seem to think it means their business model no longer works. Is their moat 33% narrower? Is their business model in decline, or experiencing a hiccup?

[thefatbaboon]

Hellsten,

 

Great notes by one of those users you linked.

 

The big drop notwithstanding, I do think the meetings business is a good moat protected business.

 

I just don't know 1. how big it is and 2. if management knows how to look after it.

 

Management was greedy and whored the meeting business,  they offered (directly or indirectly) customers a way of trading meeting attendance for money over the internet or through the season subscription.  (Well, there is nothing wrong with the season subscription - but the obligation on the company is to try and make sure there IS attendance.)  So, when you strip away some of the crappy parts,  how big is the "good" part of WTW? 

 

If you said to fatties: here is this meetings based therapy with a famous name, it works, you have to attend, there will be further support online, but nothing can replace meetings.  How big would the business be?

 

[SpecOps]

Every time I get interested in this I eventually come to the balance sheet and debt. If it weren't for that then it would be attractive even though Im not that convinced by their moat. Social media in the long term can make it far easier for people to monitor eachothers progress, although probably not quite as effective, WTW isn't exactly the best way to lose weight anyway. Anyone clued in can do it themselves better.

 

But $200m FCF per year and declining, and $2.3bn in debt. Where is the value? It'd take 12 years to pay back the debt, and I prefer not to assume companies carry debt forever.

[ukvalueinvestment]

Totally agree. Where is the risk/reward?  If FCF keeps falling, cost of debt will go up and up.  When does the debt refinance?

Would you lend to this company (let alone buy equity)?

[Guest deepValue]

WTW isn't exactly the best way to lose weight anyway. Anyone clued in can do it themselves better.

 

WTW isn't trying to attract everyone, just the ones who can't do it on their own. My opinion is that, once people realize that they can't lose weight using a free app, WTW attendance will pick back up again. It's a leveraged play; if I'm wrong, WTW is in a heap of trouble. If I'm right, there's enormous upside. One thing is certain: trailing free cash flow does not mean squat.

[thefatbaboon]

I wish there wasn't so much attention given to free apps.  It's a red herring in my opinion.  The issue is why hasn't management protected the meetings business and why is the meetings business suffering for many years (predating apps).

 

They try to have their cake and eat it too - either come to meeting or do it online.  Essentially telling their customers that doing either will work.  I think WW online has damaged this business.  It should have been used as an adjunct - not marketed as an alternative.  But obviously ripping people off for $240 a year and clipping a 70% margin was too tempting for Artal.

 

They should be advertising meetings.  Making films of glamorous ladies, picking up their keys, kissing their kids, jumping into their cars and going to secret, alluring social gatherings with other glamorous ladies.  Everyone is lonely these days, sitting in front of computers, WW should be focused on revamping the image of meetings away from gloomy gatherings for losers.  Until they make this business about meetings, front and center, it's very difficult to see how big the business actually is and what potential it has. 

 

 

[yadayada]

WTW isn't exactly the best way to lose weight anyway. Anyone clued in can do it themselves better.

 

WTW isn't trying to attract everyone, just the ones who can't do it on their own. My opinion is that, once people realize that they can't lose weight using a free app, WTW attendance will pick back up again. It's a leveraged play; if I'm wrong, WTW is in a heap of trouble. If I'm right, there's enormous upside. One thing is certain: trailing free cash flow does not mean squat.

Would also like to add that you probably miss alot of interesting opportunities thinking this way. I dont like WTW tho.

 

But alot of people are wired differently, or have different spending budgets. Seems alot of investors sometimes are too self centered, if they dont do it that way, other people must also think the same.

[A_Hamilton]

WTW isn't exactly the best way to lose weight anyway. Anyone clued in can do it themselves better.

 

WTW isn't trying to attract everyone, just the ones who can't do it on their own. My opinion is that, once people realize that they can't lose weight using a free app, WTW attendance will pick back up again. It's a leveraged play; if I'm wrong, WTW is in a heap of trouble. If I'm right, there's enormous upside. One thing is certain: trailing free cash flow does not mean squat.

 

WTW is in a heap of trouble. I use the free Lose It app and have lot 15 lbs in 6 weeks (granted week 1 is probably water weight but that isn't relevant here). I was at lunch the other day and my boss brought it up MyFitnessPal as an app he is using religiously. My apps consist of Bloomberg, LoseIt, and BofA banking . I don't use any others at this juncture and LoseIt has become very important to my daily routine.

 

I try to do my best to avoid generalizing by using my personal experience, but in this instance I believe it is incredible how important this free app has become for me and wonder why I would ever need to pay Weight Watchers a few hundred dollars per year. Also, the free apps provide as much discipline and motivation as any WTW meeting would between its red lines for days when I've eaten too many calories, the "badges" I receive for certain positive behaviors, and the free challenges one can engage in with peers.

[ukvalueinvestment]

Just out of interest, why are these apps free?  They must try and monetise themselves somehow?

[Guest hellsten]

WTW is in a heap of trouble. I use the free Lose It app and have lot 15 lbs in 6 weeks (granted week 1 is probably water weight but that isn't relevant here). I was at lunch the other day and my boss brought it up MyFitnessPal as an app he is using religiously. My apps consist of Bloomberg, LoseIt, and BofA banking . I don't use any others at this juncture and LoseIt has become very important to my daily routine.

 

I try to do my best to avoid generalizing by using my personal experience, but in this instance I believe it is incredible how important this free app has become for me and wonder why I would ever need to pay Weight Watchers a few hundred dollars per year. Also, the free apps provide as much discipline and motivation as any WTW meeting would between its red lines for days when I've eaten too many calories, the "badges" I receive for certain positive behaviors, and the free challenges one can engage in with peers.

 

Thanks. Have you or your boss ever tried any of WTW's products?

 

I'm not overweight or trying to lose weight. I tested MyFitnessPal anyway. My impression was that it seemed very time consuming to use. A database containing a million food products and ingredients doesn't help me or motivate me.

 

Calorie counting is nothing new. It has probably existed since before pen and paper were invented. There are thousands of online calorie counters and forums where people get support. These have existed and been popular for over 10 years.

 

By the way, the declining trend in calorie counting searches on Google was surprising to me:

http://www.google.com/trends/explore#q=calorie%20counter

[A_Hamilton]

WTW is in a heap of trouble. I use the free Lose It app and have lot 15 lbs in 6 weeks (granted week 1 is probably water weight but that isn't relevant here). I was at lunch the other day and my boss brought it up MyFitnessPal as an app he is using religiously. My apps consist of Bloomberg, LoseIt, and BofA banking . I don't use any others at this juncture and LoseIt has become very important to my daily routine.

 

I try to do my best to avoid generalizing by using my personal experience, but in this instance I believe it is incredible how important this free app has become for me and wonder why I would ever need to pay Weight Watchers a few hundred dollars per year. Also, the free apps provide as much discipline and motivation as any WTW meeting would between its red lines for days when I've eaten too many calories, the "badges" I receive for certain positive behaviors, and the free challenges one can engage in with peers.

 

Thanks. Have you or your boss ever tried any of WTW's products?

 

I'm not overweight or trying to lose weight. I tested MyFitnessPal anyway. My impression was that it seemed very time consuming to use. A database containing a million food products and ingredients doesn't help me or motivate me.

 

Calorie counting is nothing new. It has probably existed since before pen and paper were invented. There are thousands of online calorie counters and forums where people get support. These have existed and been popular for over 10 years.

 

By the way, the declining trend in calorie counting searches on Google was surprising to me:

http://www.google.com/trends/explore#q=calorie%20counter

 

I've never used WTW. My wife has, and has had success, but only when she could get a couple of friends to regularly go with her, She has been using LoseIt with me and is doing as well if not better with Lose It.

 

LoseIt is pretty easy after the first couple weeks of use...especially for me who is pretty consistent in what I eat for breakfast and lunch...thus I can just click one button to add a previous meal.

 

And you're right...calorie counting is nothing new...but the ease of typing "Red Robin, Chicken Breast" versus having to scout out a nutrition menu...that is relatively new.

[A_Hamilton]

Just out of interest, why are these apps free?  They must try and monetise themselves somehow?

 

They do try to monetize by selling premium services. Lose It wants $40 a year to be able to intergrate my devices (assuming I had a wireless scale, a fitbit, a pedometer, whatever) and put everything in one place. They also offer more advanced monitoring. Also, they offer more "badges" to keep you motivated. I know it sounds stupid but the badges are actually fairly motivating in the way that getting to the next level or the next item in a video game is (not that I am a big video game player). The badges concept is also being used in education now with a lot of success in keeping students to their schedules and getting assignments in on time. Turn 10 things in on time, you get a badge and you don't get docked points for turning something in late...

[Guest deepValue]

WTW isn't exactly the best way to lose weight anyway. Anyone clued in can do it themselves better.

 

WTW isn't trying to attract everyone, just the ones who can't do it on their own. My opinion is that, once people realize that they can't lose weight using a free app, WTW attendance will pick back up again. It's a leveraged play; if I'm wrong, WTW is in a heap of trouble. If I'm right, there's enormous upside. One thing is certain: trailing free cash flow does not mean squat.

 

WTW is in a heap of trouble. I use the free Lose It app and have lot 15 lbs in 6 weeks (granted week 1 is probably water weight but that isn't relevant here). I was at lunch the other day and my boss brought it up MyFitnessPal as an app he is using religiously. My apps consist of Bloomberg, LoseIt, and BofA banking . I don't use any others at this juncture and LoseIt has become very important to my daily routine.

 

I try to do my best to avoid generalizing by using my personal experience, but in this instance I believe it is incredible how important this free app has become for me and wonder why I would ever need to pay Weight Watchers a few hundred dollars per year. Also, the free apps provide as much discipline and motivation as any WTW meeting would between its red lines for days when I've eaten too many calories, the "badges" I receive for certain positive behaviors, and the free challenges one can engage in with peers.

 

Do you have any numbers on average length of use for Lose It, MyFitnessPal, or any other app? WW Online average is 9 months, 1 month longer than the meetings average. That's pretty darn impressive. Ultimately, effectiveness comes down to length of use. I'd be surprised if may people stuck with My Fitness Pal for that long, but I don't have any numbers to back that up.

 

WTW advertising is also off-point, as others have mentioned. I've always assumed that they'll turn it around, but that obviously didn't happen this year. I'm waiting to see how bad the q was before deciding to add or stand pat.

[fwallstreet]

http://www.oldschoolvalue.com/blog/stock-analysis/wtw-value-trap/

 

No new insights but fyi. Thought the discussion of brand and moat (or lack thereof according to him) was bit exaggerated, but then again this is one of, if not the, fundamental question when it comes to this idea. Is the meeting business moat still intact or permanently eroding/was ever a moat at all...also, as others have pointed out, think one of the continued misconceptions is that younger ppl or, more generally, future potential customers' habits are changing and don't want to meet in person, but it ignores that WTW has never really targeted the do-it-yourselfers but rather focuses on those ppl that need to be hand held through weight loss process.

 

This is definitely a tough idea to evaluate. Thoughts on the article?

 

[thefatbaboon]

I think there continues to be a market for ww meetings based "therapy" - and I think they have the dominant franchise - and I think the demand will be long lived.  Peer group style meetings work whether for weight loss or addiction - and for serious cases this is a very important therapy.  The issue with the company is that they've diluted their brand by pretending that ww online is something similar to and interchangeable with meetings and they've exaggerated the size of their business by selling all this online stuff.  So, I find it very difficult to know how big the genuine, moat protected, meeting based WW is.  I ended up putting this idea on the side for the moment, will look at it again next year.

[Guest hellsten]

This is definitely a tough idea to evaluate. Thoughts on the article?

 

It sounds like Jae Jun is looking at anecdotal evidence. Like me, he's probably more comfortable with technology and online forums than most of WTW's customers.

 

Jae Jun is an "engineer by trade" and creator of "Old School Value Stock Analysis Software" and I think this article shows it.

 

Free apps are NOT the competitors.

 

It’s the start of a massive trend as new companies also see the market potential and start crossing boundaries into the fitness and weight loss category.

 

Nike (NKE), Apple (AAPL), Samsung (OTC:SSNLF), mobile apps that sync with web apps and the huge shift towards wearables.

 

I’m not talking about free or 99c apps here.

 

There are huge players invading the weight loss territory. Look at what mint.com did to the personal finance space. It’s getting easier to track your goals and manage weight with the help of gadgets.

 

Time will tell if management and competitors can destroy WTW.

 

Here's an interesting article:

http://techcrunch.com/2014/01/28/yc-backed-weight-loss-startup-weilos-relaunches-moves-from-fitness-coaching-to-weight-loss-selfies/

 

In its first incarnation, Weilos paired its users with amateur coaches who had previously achieved similar weight-loss goals. Now, the company is switching to a different model: it’s becoming a mobile social network for iOS that lets users take selfies to track progress.

 

The service was founded by Ray Wu, who received an MD from Cornell in 2012. The new version of Weilos, the company says, is the first app that focuses solely on creating and viewing progress photos and provides its users with a community to talk about their personal fitness goals and post updates of their progress.

 

In his research, the average person who posted progress photos lost 1.2 lbs per week compared to 0.27 lbs for people who use Weight Watchers and 1.1 lbs for those who use the FDA-approved weight loss drug Belviq.

 

“When I studied medicine, it was clear that the patients who were most effective in combating obesity [...] also had the strongest social circles,” Wu says. “the problem is that most people don’t get enough from their personal network to reach their weight loss goals.”

[bizaro86]

 

There is a huge borrow cost on WTW right now, as the market thinks they're getting killed with negative operating leverage. (Maybe they are, I'm not sure). If you're considering a long, I'd either make sure you get the rebate from your broker, or put the long on via options, as you can go synthetic long (long a call, short a put) and get a significant credit.

[GregS]

It sounds like Jae Jun is looking at anecdotal evidence.

 

The numbers really back Jae's argument here.  WTW does have a 50 year history though, which is why it is so tempting to buy.

 

Here are a few questions to ask about WTW:

 

- If the meetings moat is strong, why is online being so heavily promoted by the company (and the only area that has grow in the last few years)?

- Can WTW continue to charge $19/mo for online access?

- If not, what can they charge?

- If online revenues shrink, what does that do to revenues, profits, and ultimately, debt service?

- Can they exploit the potential opportunity in B2B to make up for the problems in consumer?

 

I don't think Weight Watchers is a buggy whip company.  The program works, so they should always have some place in the industry.  But they are a company experiencing significant short term challenges, that may or may not be long term challenges, with substantial debt.  The debt's the killer.  It takes away an investor's patience to wait this out.

 

[Guest hellsten]

It sounds like Jae Jun is looking at anecdotal evidence.

 

The numbers really back Jae's argument here.

 

My problem with the article was that Jae Jun didn't give us anything new other than anecdotal evidence to back up his "value trap" thesis. This is a well-known fact:

http://static.cdn-seekingalpha.com/uploads/2014/4/9/saupload_WTW-revenue-streams_thumb1.png

 

With hindsight WTW was a value trap at the price he bought the stock. It could still be a value trap. I have difficulties seeing how his evidence supports the theory.

 

Anyway, this lawsuit is interesting:

http://securities.stanford.edu/filings-documents/1051/WWII00_01/2014321_f01c_14CV01997.pdf

 

Zumba's story is also interesting:

 

But how to differentiate Zumba from classes already in gyms? Up to that point, the company's message had focused on weight loss. Then, one day, Jeffrey Perlman, Alberto Perlman's brother and Zumba's chief marketing officer, spied a poster for a David LaChapelle movie called Rize. It depicted a man and a woman lost in the ecstasy of dance. He photographed it and showed the partners. Instant epiphany. Zumba wasn't about weight loss. It was about emotion. Joy. Release. The company captured its new identity in a tag line: Ditch the workout. Join the party.

 

Zumba won't disclose how many instructors it has licensed--in part, one source at the company suggested, out of fear of discouraging prospective instructors, who might worry that the market is saturated. But The New York Times put the number at more than 100,000 last spring, and Zumba says the ranks swelled 5 percent in July alone. Zumba is taught in more than 140,000 locations around the world. Roughly 65 percent of instructors are employed by fitness facilities. The rest--including the 2 percent of instructors who operate their own studios--start businesses, renting space in community centers, schools, and hospitals. "They will go to a church and say, 'I want to rent your basement,' " says Perlman. "And the church will charge them $40. And they'll charge each student $8 and get 40 people. And they have $280 in profit for that hour. It's a pretty cool model."

 

Instructors pay, on average, $250 to be licensed. Once licensed, 85 to 90 percent of them sign up for the ZIN, the razor blade in Zumba's Gillette-style business model. For $30 a month, ZIN members receive CDs of new music and DVDs of new choreography; marketing collateral, including posters, fliers, and punch cards for class regulars; website hosting; educational videos; and access to a global online network that covers dance steps, business tips, and job openings. Through a new affiliate program, ZIN members earn 10 percent of each sale when their students buy Zumba apparel online. About 50,000 ZIN members log on to the network each week.

 

http://www.inc.com/magazine/201212/leigh-buchanan/zumba-fitness-company-of-the-year-2012_pagen_4.html

[phil_Buffett]

the Situation here reminds me to my Investment in hpq. hewlett was in big Trouble. stock Price was sinking very fast. sure These are not the same companies (WTW has a lot of debt - which is not good!)

 

hewlett announced all the bad News in a very short time Frame. depreciation of Goodwill, big losses, bad Business devolpement, low guidance. they lower their guidance very much. and then they came back.  i make 50% in a very short period of time but sold to early.

 

here i see the same. weight watchers lowers their guidance so much, that it can´t go lower much more. it is almost at the bottom. so every good quarter or earnings will drive up the stock Price very dramaticly. so now iam big in the red. but i hold it.

[Ham Hockers]

the Situation here reminds me to my Investment in hpq. hewlett was in big Trouble. stock Price was sinking very fast. sure These are not the same companies (WTW has a lot of debt - which is not good!)

 

This makes all the difference in the world. You better hope they don't run into a liquidity problem ...

[phil_Buffett]

sure you are right, but i think if they can improve their Business a Little bit over the next time, the stock will go up very much. even if it is only a Little bit improvment. the stock market goes crazy. the stock was Punch down a lot and it will rise a lot if they can Show some improvement or good earnings. interest rates will rise not that much the next time, so they can survive it.