3 Reasons For JPMorgan's Weight Watchers Downgrade

Just a few weeks after JPMorgan downgraded Weight Watchers International, Inc. WTW to Neutral, the research firm now finds three reasons to turn more bearish on the company.

The Analyst

JPMorgan's Christina Brathwaite downgraded Weight Watchers from Neutral to Underweight with a price target lowered from $37 to $25.

The Thesis

JPMorgan's January downgrade of Weight Watchers was based on concerning website traffic and mobile user data trends which fell short of expectations, Brathwaite said in a note. But now three new trends warrant a bearish stance on the stock.

1. Data collected from SimilarWeb point to a 35-percent decline in daily active users in the U.S. from the start of the second quarter through Feb. 15. The analyst said outside of the U.S. the company faces similar struggles in markets like the U.K., which isn't seeing a boost from the new brand ambassador and singer Robbie Williams.
2. Recent reviews on the app store shows a concerning pattern of negative reviews, including users unable to login to the app, error messages like "connection issue" and a complex and confusing interface.
3. Competition from Noom is becoming more intense as data shows daily active users in the U.S. increased 450 percent year-over-year although off a low base; Noom app users number around 30 percent of Weight Watchers' app users. Visits to dietdoctor.com rose 160 percent on average quarter-to-date through February 15 versus a 29 percent decline in visits to Weight Watchers' core website.

Price Action

Shares of Weight Watchers were trading lower by 8 percent at $27.83 Tuesday morning.

Related Links:

Weight Watchers Is Unlikely To Hit Its Revenue Goal, Goldman Sachs Says In Neutral Initiation

Morgan Stanley: The Street Is Overestimating Weight Watchers' Addressable Market