WW dives as analyst sees user data tracking worse than bearish expectations

JPMorgan says DAU data implies that North America subscribers are around 2.5M, a drop of about 18% year over year

Shares of WW (WTW) are sliding after JPMorgan analyst Christina Brathwaite lowered her estimates and price target for the stock, saying daily active user data in the U.S. has tracked “even worse than her bearish expectations.” Further, the analyst argued that the “significant negative start to the year” will be extremely difficult for WW to overcome.

‘SIGNIFICANT NEGATIVE’ START TO THE YEAR: In a research note to investors on Thursday, JPMorgan’s Brathwaite lowered her estimates for WW and cut her price target on the shares to $12 from $14, saying DAU data in the U.S. has tracked even worse than her bearish expectations, contracting 40% year over year during the first quarter of 2019, according to SimilarWeb. By the analyst’s math, the data implies WW’s North America subscribers are around 2.5M, or down 18% year-over-year, which she says would put “significant pressure” on the company’s revenue for the year. While Brathwaite acknowledged that WW launched its new “It Works” marketing campaign prominently featuring Oprah on March 31, which could help improve recruitment trends sequentially, she believes it is still too early to tell if the marketing push is working. The “significantly negative start to the year” will be extremely difficult for WW to overcome, despite marketing investments during the second quarter and easier comparisons in the back half of the year, she contended. Additionally, given the declining profit, the analyst believes the company’s balance sheet is “coming into play” and WW’s leverage levels will trigger a mandatory 75% excess cash flow prepayment on its $1.5B term loan at the end of 2019. Brathwaite reiterated the stock as her Top Short Pick and keeps an Underweight rating on the shares.

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