Down 70% Since 2021, Can A Revival In Subscriber Growth Help WW International Stock Recover?

WW International Stock is currently trading at $7.30 per share, 82% below its pre-inflationary high of $41 seen in December 2021, and offers significant upside potential. WW saw its stock trading at $6.40 in late June 2022, just before the Fed began raising interest rates, and is now 14% above those levels, underperforming the markets overall, given that the S&P 500 is up nearly 21% over this period. The decline in WW International shares from highs seen during the Covid-19 pandemic can be attributed to the company’s declining subscriber base, particularly in the digital sector, as demand has cooled after the pandemic. Additionally, WW is also facing growing competition from a wave of new age apps as well as social media influencers.

Longer term, WW stock has suffered a steep decline of 70%, from $25 in early January 2021 to around $7 today, compared to an increase of around 25% for the S&P 500 over that period. about 3 years. However, the decline in WW stock is far from constant. The stock’s returns were -34% in 2021, -76% in 2022 and 89% in 2023. In comparison, the S&P 500’s returns were 27% in 2021, -19% in 2022 and by 20% in 2023. indicating that WW underperformed the S&P in 2021 and 2022.

Actually, consistently beating the S&P 500 – in good times and bad – has been difficult in recent years for individual stocks; for consumer discretionary heavyweights including AMZN, TSLA and HD, and even for mega-cap stars GOOG, MSFT and AAPL. On the other hand, the Trefis High quality walletwith a collection of 30 titles, has has outperformed the S&P 500 every year during the same period. Why is that? As a group, stocks in the HQ portfolio have generated better returns with less risk relative to the benchmark; less of a roller coaster ride as evidenced by HQ Portfolio Performance Metrics. Given the current uncertain macroeconomic environment, characterized by high oil prices and high interest rates, could WW face a similar situation as in 2021 and 2022 and underperform the S&P over the next 12 months – or will it recover?

Returning to the pre-inflation shock level means WW International shares will now need to gain more than 5x. However, we do not believe this will happen anytime soon and estimate WW International valuation be around $10 per share, implying gains of around 38%. In the last quarter, WW saw its subscriber numbers increase year over year as digital activity reached a milestone. Additionally, the company stands to benefit from the acquisition of digital health company Sequence, which offers a subscription service for telehealth consultations with doctors who can prescribe appetite suppressant medications like Ozempic. However, there are risks associated with an uncertain economy and slowing consumer spending. Additionally, WW’s relatively high leverage level (net debt of around $1.3 billion) also remains a factor that may limit its upside potential. Our detailed analysis of WW International’s post-inflationary upward shock captures the company’s stock trends during the turbulent market conditions seen in 2022. It compares these trends to the stock’s performance during the 2008 recession.

Inflationary shock 2022

Timeline of the inflationary shock so far:

• 2020 – early 2021: The increase in the money supply to cushion the impact of lockdowns led to strong demand for goods; producers unable to compete.
• Early 2021: Shipping issues and labor shortages due to the coronavirus pandemic continue to hurt supply.
• April 2021: Inflation rates exceed 4% and are increasing rapidly.
• Early 2022: Energy and food prices rise due to the Russian invasion of Ukraine. The Fed begins its process of raising rates.
• June 2022: Inflation levels peak at 9%, the highest level in 40 years. The S&P 500 index is down more than 20% from its record levels.
• July – September 2022: The Fed raises interest rates aggressively, leading to an initial recovery in the S&P 500 followed by another sharp decline.
• Since October 2022: the Fed continues the process of raising rates; Improving market sentiment is helping the S&P500 recover some of its losses.
• Since August 2023: The Fed has kept interest rates unchanged to allay recession fears, although a further rate hike remains on the cards.

In contrast, here’s how WW stocks and the market as a whole performed during the 2007/2008 crisis.

Chronology of the 2007-08 crisis

• 10/1/2007: Approximate pre-crisis peak of the S&P 500 index
• 09/01/2008 – 10/01/2008: Accelerated market decline corresponding to Lehman’s bankruptcy filing (09/15/08)
• 01/03/2009: Approximate low point of the S&P 500 index
• 12/31/2009: Initial recovery to levels before accelerated decline (around 09/01/2008)

Performance of WW and the S&P 500 during the 2007-08 crisis

WW International’s stock fell from $57 in September 2007 (pre-crisis peak) to around $18 in March 2009 (when markets bottomed), implying that the stock lost around $68 % of its pre-crisis value. It recovered from the 2008 crisis to reach levels of around $29 in early 2010, increasing nearly 61% between March 2009 and January 2010. The S&P 500 saw a 51% decline, from 1,540 in September 2007 to 757 in March 2009. It then increased by 48% between March 2009 and January 2010 to reach levels of 1,124.

International fundamentals of WW in recent years

WW International’s revenue has declined steadily from approximately $1.4 billion in 2019 to approximately $1.2 billion in 2021 as the company saw its physical centers impacted by the Covid-19 pandemic, although this was partly offset by growth in digital activity. However, the digital sector has seen headwinds recently, with the company’s total revenue falling to around $1 billion in 2022. WW also fell from earnings of around $1.78 per share in 2019 to a net loss of more than $3.50 per share in 2022, due to a slowdown in demand.

Does WW have a sufficient cash reserve to meet its obligations in the face of the ongoing inflationary shock?

The world’s total debt has remained roughly stable at levels of around $1.4 trillion over the past four years. The company generated $75 million in cash flow from operations in 2022, with total cash of approximately $107 million in the most recent quarter. This could imply that the company’s financial position could be somewhat constrained in a higher interest rate environment.

Conclusion

With the Fed’s efforts to rein in runaway inflation rates helping market sentiment, we believe WW stock has the potential to make gains once fears of a potential recession are allayed. The company’s foray into medical weight loss solutions could also give the stock some upside. That said, the company’s high debt level as well as its declining subscriber base present challenges.

Invest with Triple Portfolios that beat the market

See everything Triple Price estimates