Nike Inc (NKE): Too Much Weight Hard to Handle for Weight Watchers International, Inc. (WTW)?

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While investors consider companies being torn down by the upsurge of tablets and smartphones, they generally tend to concentrate on PC manufacturing companies like Hewlett-Packard and big box retailers like Best Buy.

However, a week ago, Weight Watchers International, Inc. (NYSE:WTW), fell prey to the mobile revolution, blaming the ascent of mobile technology as a major contributor to its folding bottom line. The company, eminently noted for its weight loss programs, warned on Aug. 2 that its recruitment trends and earnings are expected to deteriorate throughout the rest of the year, since free fitness applications and other electronic fitness monitors were gaining an edge over its obsolescent core business.

Weight Watchers International, Inc. (NYSE:WTW)Intensifying the impact of that bad news, CEO David Kirchhoff, set forth his proposal for resignation. After the announcement, restless investors beat a retreat and hurriedly discarded the stocks, and the shares dipped nearly 20%, dropping close to the 52 week low.

The second-quarter slide
Preceding the aforementioned plunge, Weight Watchers International, Inc. (NYSE:WTW) stated earnings of $1.36 per share, showcasing a 2.21% increase as compared to the previous year quarter, coming up $0.03 short of analysts’ expectations. It was also noted that the revenue declined by 4% to $465.1 million.

The company’s newly appointed CEO, Jim Chambers, conceded that “Current business conditions are challenging” and also that the company will “start 2014 with fewer active members and therefore a lower earnings base.” The CFO, Nick Hodgkin, also added that he holds the “sudden explosion of interest” in free fitness applications and activity monitors responsible for deeming the core business of Weight Watchers International, Inc. (NYSE:WTW) down and out during the quarter.

The not-so-sudden explosion
The judicious investors, who have had their eyes fixated on the progressively intertwining relationship between the fitness and the mobile tech industries should however realize that there is nothing so “sudden” about the aforesaid explosion.

Apple and Nike Inc (NYSE:NKE)  anticipated the technological advancements, and gave the revolution in the Activity Tracking Technology a kick start, with Nike+ FuelBand in January 2012. The FuelBand is a fitness bracelet, which synchronizes to an iOS application on the iPhone. It can be used to track daily physical activities such as footsteps covered and the amount of calories burnt on a daily basis. The application tracks the performance over a period of time, thus, empowering the user with a game-like experience in personal fitness.

Also, positive progress is rewarded with NikeFuel points, which is later made instrumental to unlock achievements. The application also allows the user’s achievements to be shared across social networking platforms like Facebook and Twitter, thereby, encouraging healthy competitions and interactions among friends across the Internet.

In fiscal 2012, Nike Inc (NYSE:NKE)’s equipment division reported an 18% year-on-year escalation in earnings as a direct outcome of FuelBand’s popularity. Ensuing the wide acceptance of Nike Inc (NYSE:NKE)’s FuelBand, other competitors, such as FitBit, Motorola MOTOACTV and Jawbone up Rev B, assertively paraded into the market.

In addition to these fitness bracelets and apps, an incessant growth has been observed in the number of free fitness tracking applications swarming the market. The Apple App store, now offers over 10,000 mobile fitness applications – many of which are free for download.

Weight Watchers International, Inc. (NYSE:WTW) also own apps for iOS and Android, which can be accessed only by the company’s paid members. This acts as a shortcoming that puts a severe constraint on their appeal.

Affixed to the past
Weight Watchers International, Inc. (NYSE:WTW) is unfortunately, still, tightly fastened to its archaic business model of paid memberships. This requires the customers to purchase membership plans, which include frozen meal deliveries, fitness plans, and meetings with Weight Watchers consultants in person or online.

Previously, this scheme worked fairly well as an all-in-one solution to weight management. However, time has flown by rapidly, and the ever-more networked individuals now prefer to achieve a sense of self-accomplishment and competition like the one offered by Nike’s FuelBand and its collaterals.

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