Not Enough New Year's Resolve: JPMorgan Downgrades Weight Watchers

As would-be weight losers seem to be already giving up on their New Year’s resolutions, JPMorgan is throwing in the towel on Weight Watchers International WTW.

January’s not over yet, but not enough people are going to the Weight Watchers website or app and JPMorgan’s checks on sign-ups in the key beginning of the year period have been weak for the weight loss company.

The Analyst

JPMorgan analyst Christina Brathwaite downgraded Weight Watchers to Neutral from Overweight and lowered the price target to $37 from $70.

The Thesis

Brathwaite said traffic to Weight Watchers website and engagement on its mobile app are down by double digits year-over-year, signaling slower-than-expected new member growth. She noted the company could rebound, as its peak months for web users are typically February and March, but JPMorgan believes it will be difficult for the company to grow its membership enough to meet revenue targets.

“We believe sales growth will moderate due to our channel checks which point to a sluggish start to the 2019 New Year resolution period, as 1Q is typically the peak subscription period for the company,” Brathwaite wrote in the note.

Competitor Emerges

Brathwaite also said a new app-based weight loss brand, the privately-held Noom Inc., may be siphoning some customers away from Weight Watchers, which was rebranded late last year to WW.

While Noom is more expensive, JPMorgan web research showed Noom has been gaining “significant traction,” Brathwaite said. She also noted that a Weight Watchers rewards program launched in October may have been less effective than expected.

Price Action

Weight Watchers was trading down 6.4 percent at $32.81 at publication time.

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Photo credit: Mike Mozart, Flickr