WW International Inc., more commonly known as Weight Watchers, is banking on another well-known name to drive growth – Oprah Winfrey.
announced Monday that it has extended its partnership with Oprah through 2025. Oprah has been a board member, shareholder and advisor since 2015. She has also served as a face of the brand.
Oprah is scheduled to join WW on a nine-city tour next year.
UBS analysts think Oprah’s presence on the tour, along with other famous guests and a supporting marketing campaign, will benefit WW’s subscription plans. Moreover, analysts expect ramped up promotion of the company’s new plan.
UBS is modeling for 8.3% subscriber growth in 2020. Analysts say there was a spike in “Weight Watchers” searches after the launch of its latest program, but that trend has turned flat since.
“Still, we think the new program launch in combination with more intense marketing efforts around New Year’s will lead to increased interest,” analysts wrote.
UBS rates WW stock neutral with a $38 price target, which is below current levels.
WW stock, which was up 0.4% in afternoon trading Tuesday, has fallen 13% over the past year as the S&P 500 index
has gained 25%.
As part of the extended partnership, WW will grant Winfrey, subject to shareholder approval,a fully vested option to buy about 3.3 million WW shares at an exercisable price of $38.84 a share. The option represents up to 4.3% of the shares outstanding, and would cost Winfrey $127.3 million if fully exercised.
If approved at next year’s annual shareholder meeting, the company expects to take a charge of $62 million.
Winfrey is currently WW’s second largest shareholder with a stake of 5.4 million shares, or 8.1% of the shares outstanding, according to data provided by FactSet. That stake was part of the original collaboration agreement announced in October 2015, in which Winfrey spent $43.2 million to buy about 6.4 million shares at $6.79. The stock price has increased by nearly 6-fold since then.
WW also disclosed Monday that Winfrey has established a stock trading plan to sell 2.9 million shares she acquired as part of the 2015 collaboration agreement, for purposes of “asset diversification, charitable giving and liquidity.” Based on current prices, the value of the 2.9 million shares Winfrey plans to sell have increased by about $94.4 million since they were acquired.
But it hasn’t all been rosy for Winfrey since she took a stake in WW.
The shares took a tumble in November after the company reported a third-quarter revenue miss. Nicholas Hotchkin, the company’s chief financial officer, said growing studio membership was key.
The company has seen less expensive digital subscriptions grow, but the studio subscription, which provides access to the perks of a WW location, have stalled.
“Intense focus on the business has led to consistently improving trends since the start of the year, and we expect year-over-year studio recruitment to turn positive in Q4,” he said on the earnings call, according to the FactSet transcript. “Despite these actions, the studio business continues to be a drag on our revenue metrics given the price of a studio subscription is twice that of a digital subscription.”
WW is also facing competition from dietary plans like keto and paleo, which have become part of many people’s health-and-wellness plans rather than just a way to lose weight. Large food companies like Conagra Brands Inc.
and General Mills Inc.
have launched a variety of products found at the local supermarket to satisfy these tastes.
And Chipotle Mexican Grill Inc.
has launched a line of Lifestyle Bowls, made with these sorts of diet regimens in mind.
But with word that Oprah was working her magic, KeyBanc Capital Markets analysts also posted a bullish note after third-quarter earnings.
“The Oprah Winfrey 2020 Vision, Your Life in Focus, is more than 80% sold out nationwide,” analysts wrote at the time. “This demand was above management’s expectations and we think the company should benefit from press coverage heading into Q4 and 2020.”
KeyBanc rates WW shares sector weight.