Weight Watchers: Update on Oprah Impact

Weight Watchers signed a dramatic endorsement deal last fall with Oprah Winfrey, while also giving her a piece of equity in the weight loss company.  After the results of first half of the year, it is helpful to look and see what sort of impact she has had on the company’s results.  I wanted to look at a few different metrics to gauge her impact.  

  1. Revenue
  2. Paid Weeks
  3. Average Price per Paid Week

As a comparison, I wanted to examine Oprah’s impact in relation to the celebrity deal that WTW did with Jennifer Hudson leading up to the 2011 dieting season.  Looking forward, I wanted to see if we could use Hudson’s history to predict how long-lasting the Oprah endorsement could be on WTW’s business.  

For the first six months of the 2011 dieting season (the first dieting season after Hudson’s endorsement), here are the comparisons from 2010.

  1. Revenue: up 29%
  2. Operating Income: up 42%
  3. Paid Weeks: up 40%
  4. Revenue Per Paid Weeks: down 7%

After the first 6 months of the 2016 dieting season (the first dieting season after Oprah’s endorsement), here are the comparisons from 2015.

  1. Revenue: down 2%
  2. Operating Income: down 1%
  3. Paid Weeks: up 3%
  4. Revenue Per Paid Weeks: down 5%

Here are a few chart comparing the impact of both celebrity endorsements.

Screenshot 2016-08-12 11.09.19
Revenue: Hudson vs. Oprah
Screenshot 2016-08-12 11.10.28
Operating Income: Hudson vs. Oprah
Screenshot 2016-08-12 11.11.52
Paid Weeks: Hudson vs. Oprah

At first glance, the impact of Oprah has been significantly less than Hudson.  However, I would like to add a few points. One, WTW also rolled out a new program (Points Plus) to coincide with Hudson during the initial dieting season.  This new Points Plus program was tweaked with Oprah during the 2016 dieting season, but there was not a wholesale facelift.  Some of the gains during Hudson’s time could attributed to the new Points Plus program.  Second, the 2015 dieting season was horrible for WTW and it is important to consider what the 2016 season would have been without Oprah.  From 2014 to 2015, revenue was down 21%, operating income was down 46% and paid weeks were down 18%.  If we were to assume a similar decline without Oprah, the net impact of Oprah is fairly substantial.  

However, we should be focused on the future impact of Oprah and I believe Hudson’s timeline provides some clues there. Revenue for 2012 (two years after Hudson signed on with WTW) was essentially flat and in the fall of 2012, WTW decided to sign a new celebrity, Jessica Simpson.  In other words, a good estimate for 2017 revenues would be flat to slightly declining sales if you believe that Oprah has had as big of an impact as Hudson.  If, as the numbers suggest, Oprah (or lack of plan innovation) has had less of an impact, 2017 revenues will begin to decline.  By how much or how quickly is anyone’s guess. The secular decline of WTW appears to be a permanent trend that not even Oprah Winfrey can change.  

One other informational fact from looking back at WTW’s numbers is the striking decline in revenue per paid week.  

Screenshot 2016-08-12 11.12.21
Revenue Per Paid Weeks

Part of this decline in revenue per paid week is a shift towards a larger base of online subscribers(roughly $20 per average online member vs. $40 per average meetings member), but this shift towards online has also eroded the “moat” that once made WTW such a durable business.     

Screenshot 2016-08-12 11.12.52
Total Paid Weeks

Although the slight uptick in paid weeks (shown above) provides some signs of hope, past data indicate that this “bounce” will be short lived and the decline of WTW’s pricing power and enrollments will continue unabated.

Matt Brice is the portfolio manager of The Sova Group, LLC, an investment firm that manages separate accounts for clients.

I can be reached at matt@thesovagroup.com 

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