WW International Stock Rallies on Plans to Acquire Telehealth Provider Sequence

WW International Stock at a Glance

• Current Morningstar Fair Value Estimate: $12.20
• WW International Stock Star Rating: 5 stars
• Economic Moat Rating: None
• Moat Trend Rating: Negative

WW International Earnings Update

No-moat WW International posted an intriguing fourth quarter of 2022, with sales of $224 million and an EPS loss of $0.46 matching our $223 million top line forecast, but missing our $0.05 profitability estimate due to a $51 million impairment charge. The firm’s end of period subscriber count was a positive surprise, with 3.55 million subs edging our own 3.4 million estimate, but marking a 15% annual decline. Nevertheless, given consumer belt-tightening, we struggle to see a viable route toward sales and adjusted profit growth during 2023 for WW. The firm’s business is extremely seasonal, so a signup shortfall during the first half of the year (with first-quarter subscriber estimates of 4 million) effectively sets WW back until next January, in our view, despite management’s unusual goal to grow subscribers during the back half of the year. We expect to lower our $12.20 fair value estimate by a mid-single-digit percentage after digesting quarterly results, leaving shares significantly undervalued.

The firm’s planned acquisition of telehealth provider “Sequence” marks an interesting pivot, representing WW’s first foray into a medicinal approach to weight loss. The acquired firm will represent a small portion of sales (2.4% of 2022 revenue), but offers exposure to popular weight loss and obesity drugs like wide-moat Novo Norodisk’s Wegovy and obesity drugs like Ozempic, albeit on a rather limited basis. While exposure to lifetime commitment drugs is theoretically attractive, the purported synergies—exercise programs to avoid losing muscle mass—strike us as optimistic. Sequence, and now WW, appear to be intermediaries in a complex healthcare system that we don’t believe needs them, particularly after those drugs are initially prescribed.

We continue to project tough sledding for the weight-loss stalwart, with our forecasts suggesting that the firm fails to recapture even 2020 net revenue figures (we expect just $1.3 billion in 2032 sales, or a 2% annual CAGR).