WW International, Inc., formerly Weight Watchers, finished fiscal year 2020 with 4.4 million subscribers, a 4% increase year-over-year and an all-time year-end high. For the period ended January 2, 2021, digital subscribers increased by 24% year-over-year, also an all-time year-end high. Despite the strong subscription growth, fourth quarter revenue was $323 million, a 3% decrease year-over-year. Full year revenue was $1.38 billion, a 2.8% decrease year-over-year.

“I am incredibly proud of what WW achieved in 2020,” said Mindy Grossman, WW president and CEO. “By delivering an engaging, holistic member experience through an innovative digital platform, we drove membership growth, maintained all-time high member retention, expanded our e-commerce presence and capabilities, and reinforced WW’s position as a tech-enabled, human-centric weight loss and wellness leader.”

“Our new membership tier, Digital 360, is being enthusiastically received by members and is building subscriber momentum. Today, WW is the leading weight loss and wellness digital subscription platform, with multiple membership verticals and revenue streams, creating a healthier and more sustainable business model,” added Grossman

Fourth quarter and full-year highlights

WW reported the following highlights for the fourth quarter of fiscal year 2020:

• Total net revenue was $323.4 million, a 2.8% decrease year-over-year.
• Net subscription revenue was $286.5 million, a 0.08% decrease year-over-year.
• Net product sales and other revenue was $36.9 million, a 15.8% decrease year-over-year.
• Subscription revenue makes up 88.6%.
• Adjusted gross profit for the period was $197.8 million, a 12.9% increase year-over-year.
• Adjusted operating income was $67.3 million, a 2.1% increase year-over-year.
• Net income for the period was $12.6 million, or $0.18 earnings per share, down from $29.4 million and $0.42 earnings per fully diluted share in the fourth quarter of fiscal year 2019.

Full-year highlights for fiscal year 2020 include the following:

• Total net revenue was $1.38 billion, a 2.8% decrease yoy.
• Net subscription revenue was $1.2 billion, a 2.1% decrease yoy.
• Net product sales and other revenue was $1.92 million, a 7.2% decrease yoy.
• Adjusted gross profit for the year was $801.1 million, excluding $23.3 million restructuring costs.
• Adjusted gross margin was 58.1%, up from 55.7% in fiscal 2019, driven by a greater focus in the digital business which has a higher margin.
• Net income for the year was $75.1 million, or $1.07 earnings per share, compared to $119.6 million, or $1.72 earnings per fully diluted share, in fiscal year 2019.
• WW finished fiscal year 2020 with $165.9 million in cash and cash equivalents.

Mitigating COVID’s impact

Like millions of other businesses, WW was impacted by COVID. The company’s workshop business was virtually shut down, and WW clients turned to the company’s digital subscription products instead – myWW+, a revamped version of the WW app which launched in November 2020, and Digital 360 with personal coaching, which launched in January 2021. Digital 360 is already seeing success. Just two months in, and the subscription offering has 100,000 sign-ups. The average retention of a WW subscriber is over 10 months.

“By successfully driving strong year-over-year growth in digital, with subscriptions up an impressive 24% and revenues up 21% on a constant currency basis, we were largely able to offset the significant pressures that COVID had on our workshop business globally,” said Grossman on WW’s February 25 earnings call.

“By actively managing our cost structure, we preserved cash flows and profitability ending 2020 with ample financial flexibility as we navigate what is still an uncertain and dynamic environment. The critical and agile actions of our team made this possible by the launch of myWW, not only executing the first ever 9-city Oprah’s 2020 Vision Tour, but quickly pivoting to a global multi-week virtual experience delivering much needed support and inspiration to millions of people around the globe,” Grossman added.

Lifetime value and retention

During the earnings call, Nicholas P. Hotchkin, chief operating officer, said the COVID lockdown has shifted consumer behavior. They want economic value and to do business with companies they trust. WW’s long-term strategy is to focus on lifetime value and retention.

“We continue to focus on LTV, longer-term commitment plans and reduced churn. In-app purchase continues to work well for us with the conversion rate from free trial of about 55% and accounting for about 10% of member sign-ups,” Hotchkin said.

“The addition of our assessment tool, leading to a 2-week free trial has been a strong recruitment vehicle. It’s important to note that we do not count free trials as sign-ups or subscribers until they convert to a paid membership at the conclusion of the free trial. In-app purchase members tend to be first time WW members, 65% in aged 45 or younger. Digital 360 has had a strong start and a $29.95 per month. It’s a premium to our digital membership,” added Hotchkin.

What to expect in 2021

Grossman said the company has three primary goals for 2021: focusing on the member experience, Digital 360 and food innovation.

“This past year has reinforced our vision and belief in the strength of our new business model, the discipline that we’ve applied to our investment thesis, and the talent and team that we’ve cultivated to be able to maximize our opportunity and solidify our path for value creation and growth,” Grossman said.

Insider Take

The pandemic has left no company untouched. In this case, WW’s business was hurt by the closure of in-person studios where workshops were held. They are now being done virtually. Though some of them will reopen in 2021, the company expects to have 400 studios (compared to 600 last year) and 250 third-party locations (compared to 2,000). This will impact the organization’s 2021 financials, but with the company’s pivot to digital subscriptions, reliance on workshop revenue will be minimized. WW has also seen success by expanding its brand beyond just weight loss. The company is focusing on health and wellness and doing so by bringing on advocates like Oprah Winfrey and James Corden. While no one knows what COVID will bring, we are all thinking about our lives differently and how we can be healthier. WW is in the right place at the right time.