Column: So much for the ‘Oprah effect,’ as Weight Watchers stock fades
There was plenty of stock market news to chew over last week, but the item that drew the largest volume of chatter on the celebrity pages involved Oprah Winfrey and the diet company Weight Watchers International.
Just as the market opened on Wednesday, you see, Oprah tweeted a promotional video about her experience as a Weight Watchers customer — the copy read: “Eat bread. Lose weight. Whaaatttt?
#ComeJoinMe” — and the company’s shares went wild. By the end of the day, Weight Watchers had gained nearly 20% from its close the day before, ending at $13.29.
It wasn’t lost on anyone that Oprah also is a heavy investor in Weight Watchers, with a 10% stake and an option to buy another 5%. “Oprah loses 26 pounds, gains $12.5M on Weight Watchers stock,” read a typical headline, this one from USA Today.
And yet, the Oprah tweet surge is already fading, displaying the half-life of a typical New Year’s resolution to lose weight. The stock has given up nearly all of its gain from the two days following the tweet, having fallen from its intra-day peak of $14.59 to about $12.50. That’s not the worst of the bad news: Weight Watchers has lost 45% since the last day of December.
The stock may be following a trajectory similar to the one it traced after the Oct. 19 announcement of Oprah’s 10% stake, which she acquired for $6.79 per share, the price on Oct. 16: Weight Watchers nearly doubled on the day of the announcement and kept rising for about a month. it peaked at $26.61 and since has fallen by more than half. Don’t cry for Oprah, however: Her original investment of $43.2 million has nearly doubled to almost $80 million.
But for investors on the outside, this pattern reflects the underlying truth of Weight Watchers International as a company and a stock. Over the last five years, Weight Watchers has delivered nothing but empty calories to the average portfolio, losing two-thirds of its value while the Standard & Poor’s 500 has gained about 50%.
The reason is that Weight Watchers’ business is shrinking, fast. Its model, based on collecting monthly subscription fees and hawking diet foods to members, faces increasing competition from online weight-loss nostrums and diet apps, while doubts proliferate over whether dieters following even the best commercially marketed regimes can keep the pounds off for more than, say, six months. Membership has been declining since 2012.
Indeed, some critics say the secret of Weight Watchers’ success always has been that its customers keep re-enrolling after they regain the pounds they lost the first time around. The poster woman for this “yo-yo dieting” is, in fact, Oprah Winfrey, whose career-long battle with her weight long has been a staple of the celebrity press. Evidently, she’s at a low point in that cycle just now, which allows her to proclaim the Weight Watcher magic on Twitter and TV.
But the public may be getting wise. The company’s best year recently was 2011, when it turned a profit of $304.9 million on revenue of $1.8 billion. For 2015 it’s projecting revenue of only $1.16 billion. In the first nine months of 2015, the company’s revenue fell by nearly two-thirds compared with the same period a year earlier, and its profit fell by nearly 80%, to $21.2 billion.
To the extent Weight Watchers is keeping its head above water, the secret may be that it’s been slimming down itself, paring $250 million from costs by closing offices and reducing staff. In its last quarterly report, it listed Oprah’s investment as one of the keys to keeping its finances sound for the next twelve months.
Oprah Winfrey’s star power may help Weight Watchers’ member recruitment limp along, at least temporarily. But it should be remembered that she’s not the most reliable guide to health and wellness. On the contrary, she’s been known to promote discreditable sources on these topics, giving powerful public platforms to the likes of actress Jenny McCarthy and her anti-vaccination campaign. The dubious Dr. Mehmet Oz got his start as a public figure on Oprah’s TV show. Anyone paying attention might well conclude not only that one shouldn’t follow the health tips promoted by Oprah Winfrey, but avoid her stock investments too.