Transcript: Can WeightWatchers survive the Wegovy era?

This is an audio transcript of the Behind the Money podcast episode: ‘Can WeightWatchers survive the Wegovy era?’

Michela Tindera
Tricia Bryan has struggled with her weight throughout her life.

Tricia Bryan
So weight has always been a key issue for me. Ever since I was very, very small and I remember trying everything under the sun.

Michela Tindera
One of the things she tried was the decades-old weight loss program WeightWatchers.

Tricia Bryan
My mom signed me up for it, and that was back when the points where you use, like, a little like paper or like cardboard slider type thing to calculate your points. Goodness. It was probably toward the end of my high school years, maybe early college. So 2004, 2005.

Michela Tindera
Today, Tricia is 38 years old and a small-business owner living near Atlanta. But she told FT reporter Anna Mutoh that over the years she had her ups and downs and tried different programs to lose weight.

Tricia Bryan
Things ebb and flow and weight loss is far from linear, right? Things happen. We have external stressors in our lives and weight fluctuates. And mine absolutely has.

Michela Tindera
She told Anna that a few years ago she gained nearly a hundred pounds during a tough pregnancy.

Tricia Bryan
I tried and tried and tried everything to, you know, make the little changes again and get back into a routine, get back to habits. And I was just stagnant. My weight wasn’t going anywhere.

Michela Tindera
One day recently, she logged back into her WeightWatchers app, and she noticed that the company was offering something totally new. She saw that they were giving members the chance to get a prescription for one of the popular GLP-1 weight loss drugs, like Wegovy, Zepbound or Mounjaro.

Tricia Bryan
And I was like, oh, this is interesting. So I took a dive into that a little bit, and I ended up seeing if I was eligible for a GLP-1, and I was.

Michela Tindera
This new option from WeightWatchers is part of a giant change that the company has made recently. For years, WeightWatchers built its reputation around offering two key methods to help people trying to lose weight. First, offering member support groups and second, a points-based system to help track what you eat. But last year, Anna tells me that the company took a step in a new direction.

Anna Mutoh
So the company spent $106mn to acquire telehealth company start-up called Sequence, and that allowed WeightWatchers to fundamentally transform its business.

Michela Tindera
And with this acquisition, it’s moved into the business of dispensing medications to people like Tricia Bryan.

Anna Mutoh
So at first glance, this decision might sound like a total home run. I mean, it makes total logical sense. GLP-1 drugs have fundamentally changed the way people think about weight loss.

Michela Tindera
But in the years since the acquisition, WeightWatchers has faced challenge after challenge. Their credit rating was downgraded and the stock price is still floundering.

Anna Mutoh
It’s a race between how quickly they can pivot versus convincing the market that they can do it.

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Michela Tindera
I’m Michela Tindera from the Financial Times. The commercial launch of GLP-1 drugs upended the weight management industry. Today on Behind the Money, we’re looking at whether WeightWatchers, a pioneer in the sector, can turn things around. 

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Hi, Anna. Welcome to the show.

Anna Mutoh
Thank you.

Michela Tindera
So WeightWatchers. I know it’s a brand that’s been around a long time, but what’s the company’s back-story?

Anna Mutoh
So I think a lot of people have heard the name before. It originally started in the early 60s in Queens, New York. There was a housewife who bumped into an acquaintance, and the acquaintance thought she was pregnant. She was actually just overweight. So that’s how it started. First with a small group of people gathering like a support group. But then it grew into this huge cultural phenomenon over the last few decades. They had a TV show at one point, they had magazines, they had recipe books. It was the go-to place for weight loss. It was even featured on Mad Men.

[‘MAD MEN’ CLIP PLAYING’]

Michela Tindera
Mmm, yeah. WeightWatchers has had some moments in pop culture over the years. But what about the financial success of the company? What are some standouts there?

Anna Mutoh
Well, interestingly enough, one of the company’s biggest moments on the stock market in recent years was when the stock hit an all-time high in 2018. The analysts I spoke to called it the “Oprah effect”.

Michela Tindera
OK, interesting. But what do you mean?

Anna Mutoh
So the big bump for WeightWatchers stock and also brand value came about when the famous talk show host Oprah Winfrey came on board. She had been struggling with her weight loss journey, became a WeightWatchers member, but 10 per cent stake in the company, joined the board and kind of became the spokesperson for the company. And since Oprah came on board in 2015, by 2018 the stock had reached over $100.

Michela Tindera
OK, so doing really well in 2018, thanks to Oprah. So when would you say exactly that the trouble begins?

Anna Mutoh
So, the stock price came down after the initial Oprah excitement, but then in 2021, something even bigger happened. That’s when the US Food and Drug Administration approved GLP-1 meds for weight loss use. And this existential crisis began pretty much for any company operating in the weight management sector. And some people thought, why do you even need a diet program when you have this drug? So the following year, WeightWatchers reported that their revenue dropped and more than 15 per cent of its subscribers left, which basically means that their total subscriber count fell to about 3.5mn people.

Michela Tindera
OK. So that’s why they decided to acquire the telehealth company Sequence to sell these GLP-1 drugs, right?

Anna Mutoh
Yeah. So, I interviewed the CEO, Sima Sistani, a few weeks ago. It was actually right before her two-year anniversary at the company. And she actually has an interesting back-story. She herself was actually a WeightWatchers member for a bit. And she also comes from more of a tech background in her career. She used to work at places like Yahoo and Tumblr, and she also founded this social media app called House Party. And so when I spoke to her, she told me about the need to transform the company, and part of that was making the Sequence acquisition.

Michela Tindera
So tell me more about how things have gone for the company since that acquisition last year.

Anna Mutoh
So the GLP-1 subscription business, which is WeightWatchers clinic, they currently have 67,000 members. And that’s compared to their overall membership of just under 4mn.

Michela Tindera
OK, so it sounds like a few positive signs here in these early days since the acquisition. But why is the stock price been in such poor shape this year? I mean, the share price has been hovering around $2 lately, so that’s a far cry from those $100 highs you mentioned from 2018.

Anna Mutoh
So the big news that happened end of February was Oprah Winfrey announced that she’s leaving WeightWatchers. She’s no longer going to be a board member. And that pushed down the stock by 20 per cent. New lows. But then what happened was a week later, there were new concerns about their debt and their leverage. And a couple rating agencies downgraded their rating to just above junk grade. And then there were reports that the company’s lenders were in talks with lawyers about these debt issues.

Michela Tindera
OK, so there was the Oprah effect and now the Oprah, I guess, fallout. So how bad are these debt issues exactly?

Anna Mutoh
So their net debt is $1.3bn, which means it’s nine times levered compared to their earnings. And that stands out compared to other companies in the same space, because it’s pretty unusual to find companies that’s more than three to four times levered.

Michela Tindera
So what’s the company told you about how they’re trying to overcome these challenges?

Anna Mutoh
So when I interviewed the CEO, Sima Sistani, she described the challenges that WeightWatchers is facing is more of a paradigm shift. She said that the moment is so big that it’s like when companies like Netflix and Facebook had to make when they faced existential challenges. Think about when Netflix pivoted from mailing DVDs to streaming, and she thinks that WeightWatchers needs to make that level of a transformation.

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Michela Tindera
Coming up: we’ll take a closer look at the CEO of WeightWatchers, Sima Sistani’s plan, and whether she can convince investors that this transformation is the real deal.

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Michela Tindera
OK, Anna, so WeightWatchers is trying to pull off this major transformation here, and they’re facing a lot of headwinds with the realities of their balance sheet and their debt and all that. So what’s their strategy or plan to get through this?

Anna Mutoh
Well, they’re focused on a couple of things. On the cost side, they’re going through a restructuring. They’ve already centralised global management. They’ve cut non-strategic business lines. They’ve also sold some of their real estate, which was a little bit of a drag. So they’re really streamlining everything to bring costs down. At the same time, they’re pivoting their strategy from being a weight loss company to what they call a weight health company, which they say is a one-stop weight loss program for your health. That includes offering the GLP-1 drugs for members who want that, or just the old behavioural guided program or a combination of the two. They say it’s really a solution for everybody, wherever you are on your weight loss journey.

Michela Tindera
Now, Anna, you brought up an important point a bit earlier that I want to ask about now, which is: why sign up for WeightWatchers when you can just get prescribed one of these drugs from your doctor? I mean, why would I even need to think about behavioural changes when these drugs are so powerful and I can just inject myself with a medication and lose weight?

Anna Mutoh
So some people are saying it’s just a lot easier to get a shot than having to change your behaviour. But what’s the most impactful is to combine the two. In fact, I spoke with a number of doctors as well as read some studies that show this scientifically. It’s you get better results by combining a weight loss program or behavioural change program along with the weight loss drug.

Michela Tindera
Right. And that was one of the big things that the WeightWatchers member Tricia Bryan told you, right?

Anna Mutoh
Yeah, exactly. So she said that she sees behavioural changes as being a key part of losing weight while being on this medication.

Tricia Bryan
It’s not a miracle drug. If you’re like, oh, I’m just going to take this injection and eat whatever I want, I’m going to go have like three Big Macs, you know, like, that’s not like we all know that’s not what we should be doing. Some people think it’s like taking the easy way out. It’s not there. So it’s again it’s a tool. It’s a tool the way that a lap band is a tool. You know, you still have to do the work. You have to make changes. This is an extra nudge in the direction you want to go in.

Michela Tindera
So how did Tricia say it’s been going for her? You know, taking a GLP-1 drug. What did she tell you about the experience so far?

Anna Mutoh
Her biggest reservation was giving herself an injection. But she quickly got over that fear. She also spoke with her doctor, and the doctor was for it, but she ultimately decided to go through WeightWatchers because she was already a member. She knew the program very well.

Michela Tindera
Yeah, that’s an interesting point. So she was familiar with WeightWatchers and wanted to keep within that sort of ecosystem as she continue to lose weight using the new GLP-1 drugs. Is that fair to say?

Anna Mutoh
Yeah. Tricia’s experience is pretty emblematic of the strategic goal that WeightWatchers has. You know, Tricia has this really long-term relationship with WeightWatchers. It’s been on and off, but she’s been connected to the program for years, almost 20. And at one point, she built up this following on Instagram, posting about her healthy recipes and stuff like that. And WeightWatchers even paid her a few hundred dollars to participate in an event where she met other program members. And by January of this year, she tried out GLP-1 drugs for the first time.

Michela Tindera
OK. So yeah, like we talked about going back to that idea of the strong brand value that WeightWatchers has. So what do you think that means for the company?

Anna Mutoh
Yeah, it really speaks to how sticky the brand is actually. In doing this reporting, I learned that about 70 per cent of their clinic subscribers — so people who take the GLP-1 drugs through WeightWatchers — 70 per cent of those people come from one of two buckets. One is lapsed members, which is about 20mn people. And that’s huge. And then the other bucket is existing WeightWatchers members. You know, so many people who I interviewed said that they knew about the company because their mom was a member. So this is seen as the trusted weight loss method. And that’s their strength in terms of acquiring more clinic subscribers.

Michela Tindera
Now, I know you’ve spoken to some analysts who cover WeightWatchers stock, so let’s talk about what they think. How likely is the company to get back on track and stay competitive as it faces these issues with the GLP-1 drugs, with the company’s debt and just all of that?

Anna Mutoh
So opinions are pretty split. There are believers and non-believers. Currently, the non-believers are winning because the stock is trading just under $2.

Michela Tindera
OK. So let’s start with the negative side here first. The non-believers, what’s their position?

Anna Mutoh
Beyond this existential crisis that WeightWatchers is going to become irrelevant because of GLP-1 drugs, they think that they’re also going into an extremely competitive space, even with this clinic business, because there are smaller, more nimble companies like Noom, for example, which is a . . . its direct to consumer company that is the closest comp to WeightWatchers. The other issue is their large debt on their balance sheet and cash flow. So they think that it will be hard to turn the company around before they have to face a cash flow issue.

Michela Tindera
So let’s look at the believers side of things. What do they say?

Anna Mutoh
So the believers are saying the debt is not an issue immediately because their loans are not due until 2028 and 2029. So there’s still time. But at the same time, this clinic business that they’re growing is growing fast enough that they’re going to be able to turn it around. In fact, more recently, the company said that they’re punching above their weight in terms of the clinic growth. In fact, one of the bullish analysts said that this is kind of like the crown jewel for their company. This is what they really need to focus on.

Michela Tindera
So what sort of timeline is WeightWatchers working with on this business revamp? What needs to happen when?

Anna Mutoh
So the clock is ticking in a way because of these loans that expire. But more importantly, it’s a cash flow issue for the near term. They’re going to burn cash in the first half of the year on things like marketing and some upcoming payments. But next year they need to not burn cash. And so analysts told me that they have one year, if not two years, to convince the market that they’re going to be able to do this.

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Michela Tindera
Anna, thank you so much for coming on the show.

Anna Mutoh
Thanks for having me.

Michela Tindera
Behind the Money is hosted by me, Michela Tindera. Saffeya Ahmed is our producer. Topher Forhecz is our executive producer. Sound design and mixing by Sam Giovinco. Special thanks to Andrew Edgecliffe-Johnson. Cheryl Brumley is the global head of audio. Thanks for listening. See you next week.