Oprah's Weight Watchers Stake Shrinks by $580M

Weight Watchers International, Inc. (WTW), now transitioning into "WW Inc." stumbled badly on Wednesday, with shares dropping more than 35% after the company missed fourth quarter revenue estimates and sharply reduced full-year guidance. Weight Watchers reported the slowest growth in two years, stoking criticism that a poorly organized roll-out of the new corporate identity has forced customers out the door, confused and frustrated by the branding.

The value of Oprah Winfrey's 5.5 million shares in Weight Watchers has dropped by an astounding $586 million since the stock topped out at $105.73 in June 2018, bringing her remaining stake to $131 million. The media mogul purchased 7.5 million shares at prices in the single digits in October 2015, taking 10% ownership in the weight loss and fitness giant, and netted $110 million when she sold 2 million shares in March 2018.

The stock closed at a 22-month low in the upper teens on Wednesday but could post new lows in the coming weeks if other analysts match JP Morgan's newly issued $14 price target. And given the trajectory since the third quarter of 2018, the decline may soon challenge Oprah's entry price at $6.79, highlighting the overriding importance of price targets, profit protection and risk management, even for high-profile billionaires.

WTW Long-Term Chart (2001 – 2019)

The company came public at $30.00 in November 2001, nearly 40 years after being founded by Queens, New York, entrepreneur Jean Nidetch, and the stock topped out just above $50 in the fourth quarter of 2002. It bottomed out within a point of the IPO opening print in 2004 and turned higher, completing a round trip into the prior high more than one year later. An immediate breakout failed to attract buying interest, stalling at $57 in August 2005.

That marked the highest high for nearly six years, ahead of a downturn that accelerated during the 2008 economic collapse. The decline broke IPO support in October and bottomed out in the mid-teens in March 2009, while the subsequent recovery wave reached the 2005 peak in February 2011. A breakout added 30 points into May and reversed, yielding a major breakdown in June 2012.

Selling pressure continued for another three years, reaching an all-time low at $3.67 just three months before Winfrey made headlines with her large stake. The subsequent uptrend stalled in 2016 and resumed in 2017, entering a parabolic phase that added more than 90 points in just 15 months. The stock posted an all-time high at $105.73 in June 2018 and turned sharply lower, dumping more than 80 points into Wednesday's closing print.

The monthly stochastics oscillator has reached the deeply oversold reading hit in 2014 and 2015 (blue line). Both of those downturns posted even lower lows after reaching that level, reducing its value as a contrary signal. In addition, the decline has now crossed the .786 Fibonacci retracement of the uptrend that started in 2015, indicating that selling pressure may continue into the 100% retracement. In turn, that would drop Oprah's remaining stake into a net loss.

WTW Short-Term Chart (2017 – 2019)

Wednesday's decline broke support at the 2001 IPO opening print for the third time in the stock's public history, striking a psychological blow. The on-balance volume (OBV) accumulation-distribution indicator posted an all-time high with price in June 2018 and has now fallen to the lowest low since May 2017. This signals an aggressive exodus of institutional capital, despite Oprah's reputation as a savvy businessperson.

It's difficult to find high-odds reversal levels after months of one-sided price action. Ominously, there's little support in the price history until the 2016 low at $9.73, exposing the decline to another 50% haircut. It's instructive to note that a sell-off reaching that level would place the October 2018 continuation gap right at the 50% level, matching its long-held reputation as a halfway point for uptrends and downtrends.

The Bottom Line

An aggressive exit of institutional capital escalated into a full-scale exodus this week after the company formerly known as Weight Watchers warned about growth deceleration.

Disclosure: The author held no positions in the aforementioned securities at the time of publication.