We came across this write-up about WW International on VIC posted by WinBrun who is bullish about WW. Here is a summary of the long thesis:
WW International Inc. which was previously known as Weight Watchers is a fitness, weight loss and mindset company that is based in the U.S but it has its operations across the globe. The company’s role in the fitness industry is to help clients achieve their weight loss goals through various programs and services designed to help them get there as efficiently as possible.
The past few months were quite challenging for WW International particularly due to the global pandemic which significantly disrupted business when lockdown measures were imposed. Most of the company’s customers prior to the pandemic would schedule in-person visits but the lockdown and social distancing measures negatively impacted this model because the clients could no longer do in-person visits.
The disrupted in-person model made it difficult for the company to maintain a strong revenue flow and this in turn negatively affected its stock performance.
Investors have been shunning the stock for the past few months on account of the challenges during the pandemic. However, things have been improving, which means that it is time to reconsider especially now that the company has ventured into the digital segment. WW International CEO, Mindy Grossman announced that the company’s digital portfolio, particularly the digital subscribers increased by 12 percent in Q3 2020.
Grossman also noted that WW International had 4.7 million subscribers at the end of Q3 2020 and 3.8 million of them were digital subscribers, which means that the digital space has a lot of growth potential. Roughly 90 percent of all the subscribers were digital, on account of the pandemic’s social and economic impact. The fact that digital subscribers have been growing exponentially which will translate to higher revenues and also more value for shareholders.
“We grew digital subscribers by 23% with strong growth in every geographic market. This accelerated digital growth enabled us to achieve year-on-year comparable operating income levels and EPS growth… We ended the quarter with 4.7 million subscribers, up 5% year-over-year and a record level for the end of Q3…. We ended the quarter with 3.8 million digital subscribers globally, up 23% year-over-year. In Q3, nearly 90% of member sign-ups chose our digital membership, up from approximately 70% in 2019. As we expected, workshop subscribers or Studio + Digital were down 36% year-over-year to 850,000 due to significantly lower member sign-ups as a result of the pandemic,” stated Grossman.
The company’s digital portfolio should provide a buffer for the low-in house visits. The vaccine rollout will also encourage normalcy which might translate to more people returning to their in-person visit schedule. Here is how WinBrun explained why you should consider a long position in WW:
“From 2015-2018, WW consistently earned gross margins between 50-54%, and EBIT margins in the low-to-mid 20% range. The business generates good cash flow due to low levels of working capital and PP&E. A lot of the overhang around legacy WW had to do with an excessive level of leverage and being late to digital. Both areas have made improvements. Lastly, the stock is about ~10x E2021 EPS, a relatively inexpensive price for a highly resilient consumer brand with a growing digital subscription business that could return multiples of the current price if the new strategy begins to work.”