WeightWatchers (WW)

Personal wellness company WeightWatchers (NASDAQ:WW) announced better-than-expected revenue in Q4 CY2024, but sales fell by 10.5% year on year to $184.4 million. Its non-GAAP profit of $0.32 per share was significantly above analysts’ consensus estimates.

Company Overview

Known by many for its old cable television commercials, WeightWatchers (NASDAQ:WW) is a wellness company offering a range of products and services promoting weight loss and healthy habits.

Some consumer discretionary companies don’t fall neatly into a category because their products or services are unique. Although their offerings may be niche, these companies have often found more efficient or technology-enabled ways of doing or selling something that has existed for a while. Technology can be a double-edged sword, though, as it may lower the barriers to entry for new competitors and allow them to do serve customers better.

WeightWatchers's fitness and wellness peers include BODi (NYSE:BODY), MyFitnessPal, Noom, Cult.fit, and Trainerize.

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can have short-term success, but a top-tier one grows for years. WeightWatchers’s demand was weak over the last five years as its sales fell at a 11.1% annual rate. This wasn’t a great result and suggests it’s a low quality business.

Long-term growth is the most important, but within consumer discretionary, product cycles are short and revenue can be hit-driven due to rapidly changing trends and consumer preferences. WeightWatchers’s recent history shows its demand has stayed suppressed as its revenue has declined by 13.1% annually over the last two years.

We can dig further into the company’s revenue dynamics by analyzing its number of members, which reached 3.3 million in the latest quarter. Over the last two years, WeightWatchers’s members averaged 3.9% year-on-year declines. Because this number is higher than its revenue growth during the same period, we can see the company’s monetization has fallen.

This quarter, WeightWatchers’s revenue fell by 10.5% year on year to $184.4 million but beat Wall Street’s estimates by 5%.

Looking ahead, sell-side analysts expect revenue to decline by 8.9% over the next 12 months. Although this projection is better than its two-year trend, it's tough to feel optimistic about a company facing demand difficulties.

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

WeightWatchers’s operating margin has been trending down over the last 12 months and averaged negative 14.9% over the last two years. Unprofitable consumer discretionary companies with falling margins deserve extra scrutiny because they’re spending loads of money to stay relevant, an unsustainable practice.

This quarter, WeightWatchers’s breakeven margin was up 2.9 percentage points year on year. This increase was a welcome development, especially since its revenue fell, showing it was recently more efficient because it scaled down its expenses.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Sadly for WeightWatchers, its EPS declined by more than its revenue over the last five years, dropping 27% annually. This tells us the company struggled because its fixed cost base made it difficult to adjust to shrinking demand.

In Q4, WeightWatchers reported EPS at $0.32, up from negative $0.06 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects WeightWatchers to perform poorly. Analysts forecast its full-year EPS of $0.37 will hit negative $0.24.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Over the last two years, WeightWatchers’s demanding reinvestments to stay relevant have drained its resources, putting it in a pinch and limiting its ability to return capital to investors. Its free cash flow margin averaged negative 1.8%, meaning it lit $1.77 of cash on fire for every $100 in revenue.

WeightWatchers burned through $11.8 million of cash in Q4, equivalent to a negative 6.4% margin. The company’s cash flow turned negative after being positive in the same quarter last year, prompting us to pay closer attention. Short-term fluctuations typically aren’t a big deal because investment needs can be seasonal, but we’ll be watching to see if the trend extrapolates into future quarters.

Over the next year, analysts predict WeightWatchers will continue burning cash, albeit to a lesser extent. Their consensus estimates imply its free cash flow margin of negative 4.3% for the last 12 months will increase to negative 1.7%.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

WeightWatchers’s five-year average ROIC was negative 10%, meaning management lost money while trying to expand the business. Its returns were among the worst in the consumer discretionary sector.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, WeightWatchers’s ROIC has unfortunately decreased significantly. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.

As long-term investors, the risk we care about most is the permanent loss of capital, which can happen when a company goes bankrupt or raises money from a disadvantaged position. This is separate from short-term stock price volatility, something we are much less bothered by.

WeightWatchers burned through $33.85 million of cash over the last year, and its $1.48 billion of debt exceeds the $53.02 million of cash on its balance sheet. This is a deal breaker for us because indebted loss-making companies spell trouble.

Unless the WeightWatchers’s fundamentals change quickly, it might find itself in a position where it must raise capital from investors to continue operating. Whether that would be favorable is unclear because dilution is a headwind for shareholder returns.

We remain cautious of WeightWatchers until it generates consistent free cash flow or any of its announced financing plans materialize on its balance sheet.

We liked that WeightWatchers beat analysts’ revenue and EPS expectations this quarter. The company is not providing 2025 guidance at this time. Overall, this quarter was solid. The stock traded up 4.2% to $0.83 immediately following the results.

Updated: May 16, 2025 at 10:52 PM EDT

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in WeightWatchers.

We cheer for all companies serving everyday consumers, but in the case of WeightWatchers, we’ll be cheering from the sidelines. To begin with, its revenue has declined over the last five years. And while its projected EPS for the next year implies the company’s fundamentals will improve, the downside is its number of members has disappointed. On top of that, its declining EPS over the last five years makes it a less attractive asset to the public markets.

WeightWatchers’s EV-to-EBITDA ratio based on the next 12 months is 0.2x. While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are better stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $1.10 on the company (compared to the current share price of $0.26).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

To get the best start with StockStory, check out our most recent stock picks, and then sign up for our earnings alerts by adding companies to your watchlist. We typically have quarterly earnings results analyzed within seconds of the data being released, giving investors the chance to react before the market has fully absorbed the information. This is especially true for companies reporting pre-market.