Weight Watchers International Inc.’s (WW, Financial) plans to improve the customer experience could catalyze its stock price. As part of this initiative, it is introducing a wider range of rewards and an expansion of its member services that could lead to higher customer engagement levels.
The company is also investing in new technology in order to increase customer retention rates and appeal to a wider range of consumers.
Its stock price has fallen 73% in the last year versus a rise of 7% for the S&P 500. With a low valuation and strong earnings forecasts, it could deliver a successful recovery.
Technology
The company’s investments in new technology could increase its differentiation versus competitors. For example, it is currently piloting a virtual coaching application. This aims to bring its coaches to members in innovative ways, providing greater convenience and an improved overall experience.
Weight Watchers is continuing to invest in its mobile app, with the main objective of increasing user engagement. For instance, the utilization rate of its social media feature within the mobile app, Connect, increased from 50% in 2018 to 67% in the first quarter of 2019. Similarly, by the end of the most recent quarter, 1.5 million members were using the Weight Watchers mobile app to track their activity levels. This is up from an average of 1.3 million in 2018.
Increasing engagement levels could lead to higher retention rates. With additional features planned for its mobile app through the remainder of the year, an increasingly innovative offering could catalyze the rate of membership growth.
Customer experience
Weight Watchers’ plans to enhance the customer experience could boost its competitive advantage. The company is set to provide a wider range of badges that celebrate specific milestones in member journeys. Rewards and recognition have historically boosted engagement levels, which leads to higher retention rates. New rewards and badges are due to be available online this year and could act as an additional marketing tool when shared by members on social media.
The company’s Connect Groups provide an increasingly personalized experience for members. The groups help members find people in similar situations in life, or from a similar background. They provide one another with advice and support for specific life events, such as the company’s Brides group. Members who join Connect Groups have twice the level of engagement as members who are not part of a group. Since only 9% of the company’s members have joined Connect Groups, there is room for increasing levels of interaction in this space across the company’s customer base.
Risks
In the most recent quarter, the company reported a 0.9% increase in subscribers. This slow rate of growth was primarily due to a 10.4% decline in subscribers to the company’s "Studio + Digital" offering, which includes access to weekly workshops. This contributed to a 9% decline in revenue in the most recent quarter. This trend may continue in the near term, with the company having been unable to successfully pivot from a focus on weight loss to promoting wellness among its members.
In response to a disappointing quarter, the company is conducting additional market research. This is expected to more closely align its offering with consumer interests through the use of real-time analytics that accurately measure the efficacy of marketing programs across different audiences. This is set to provide lower-cost sign-ups and a higher return on investment. The company is also ramping up its efforts on social media. For example, Oprah Winfrey is highlighting real-life member success stories in a weekly feature that could resonate with existing and potential customers.
Outlook
In the next financial year, Weight Watchers is forecasted to post a 27% increase in earnings per share. With a forward price-earnings ratio of 16, the stock appears to offer a margin of safety.
The company’s continued investments in new technology could improve its offering versus sector peers and lead to higher customer retention rates.
Its focus on improving the customer experience may enhance its competitive position and contribute to a stronger financial performance after a disappointing first quarter.
Having underperformed the S&P 500 in the last year, the stock could offer recovery potential over the long run.
Disclosure: The author has no positions in any stocks mentioned.
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