Weight Watchers Sees The 'Oprah Effect'- But It May Not Last

The businesswoman has bestowed the Oprah effect on the company just as she did for bestselling volumes. But Weight Watchers fiscal future remains unclear

In a single tweet, celebrity Tv host Oprah Winfrey earned for herself more fund than most American households will see in a lifetime.

The drama unfolded on Tuesday, when Oprah posted a video on Twitter celebrating the fact that she has lost 26 lb since last summertime thanks to her Weight Watchers diet. Best of all, the daytime television diva proclaimed, she did it while eating bread yes, bread! every day.

Weight Watchers Sees The 'Oprah Effect'- But It May Not Last

News that Oprah, whom Forbes ranked as the worlds 12 th-most-powerful woman, was pushing the virtues of Weight Watchers sent the companys shares rising $2.17, or virtually 20%, to make $13.29 apiece.

The Twitterverse explosion. Apple stock is getting killed on news that the iPhone6 does not assistance Oprah lose weight, quipped @canuck2usa. Does anyone know Oprahs current weight? I need it to accurately model the price of$ WTW, came the urgent plea from @Financialtailor.( WTW is the symbol for Weight Watchers stock .)

Meanwhile, media watchers are scrambling to calculate the net benefit to both Oprah and Weight Watchers of her very, very public proclamation of her shrinking waistline. The conclusion? For every pound of weight she has lost, Oprah has made about $2.4 m.( That doesnt include the value of her option awards .) She first bought a large block of stock in October at the price of $6.79 a share( she also has the option to buy a lot more at the same cost, well below the current share cost, which would instantly enable her to double her money ), giving her a 10% stake in the company. She also joined the companys board of directors.

It hasnt been too shabby a deal for Weight Watchers, either, which has insured the market value of the company as a whole rise about$ 6m per pound lost by Oprah since last October, in spite of what has been a tremendously volatile ride. The stock has topped $25 but lately has been heading south to pre-Oprah levels.

Its all very entertaining. But its also deadly serious business, for Oprah, for Weight Watchers and for you, to the extent you get caught up in the excitement.

The fact that there is an Oprah effect shouldnt come as a great shock to anyone. Remember the Oprah book club? Of the 70 books that got her seal of approval, 59 attained it onto the New York Times bestseller list; even Charles Dickens revisited the bestseller listings, to the awe of English teachers worldwide.

But none of us should need any reminders that expending isnt or shouldnt be about amusement. Or rather: allow yourself to be entertained, but for heavens sake, dont mistake the media hype for solid investment advice.

Its altogether logical for Weight Watchers to turn to Oprah Winfrey for help turning around what has become a struggling business model. It isnt that Americans have stopped including a pledge to lose weight among their New Year resolves; its merely that new technologies( thank you, Fitbit !) and free apps off all kinds( such as MyFitnessPal) have displaced some of what Weight Watchers and other old school diet centers offered. The company is struggling with a hefty debt load, declining membership numbers and a big, fat image problem.

But now, as part of the companys rebranding, it has landed Oprah as a spokeswoman and who could be better? After all, this is the woman who has dieted over and over again, losing weight and gaining it back, all while in the public eye. After one dramatic 67 lb weight loss in 1988( on a liquid protein diet ), she even wheeled a wagon loaded with that sum of fat onto the stage of her talk indicate to exemplify just how much she had shed a few moments she afterwards called her biggest, fattest mistake.( She began regaining the weight virtually instantly .)

The deal itself was public and straightforward: Weight Watchers advised the Securities and Exchange Commission and we know all of the details. Well, most of them. As it turns out, Oprah signed off on the deal in August, several months earlier( or so she afterwards told Ellen DeGeneres ), but opted to wait to make sure that the companys financials didnt deteriorate before unveiling her involvement, leaving herself a way out as well as making sure that she liked the points system. Thats the sign of a very canny, prudent businesswoman.

Now lets consider the timing of the tweet heard round the world. While the proclamation that Oprah had become a major stockholder( embattled hedge fund director Steve Cohen is a fellow investor) caused the stock to double, that initial upsurge didnt last. At least some of it likely received from a short squeezing: the kind of buying that happens when short marketers folks who have borrowed stock to sell it, betting that theyll be able to buy it back more cheaply in the future “re going to have to” hurry to buy it back as the stocks cost rises, or have to post more security with their brokers.

Once that short-covering rally was out of the way, and without any more news to help buoy the stock, it sank. Indeed, in November, the company announced a 41% drop in earnings for the third one-quarter. Still, that was nothing that a tweet from Oprah couldnt help, as it turned out

The real test, of course, is whether Oprahs tweets, and her ongoing endorsement, will convince enough of us to imitate her just as we did when it comes to reading books and sign up for Weight Watchers programs. The problem, of course, is that a Weight Watchers program is more costly than the typical paperback, even before the price of food is included, and some members report that the organization is pushing members to commit to longer terms, either by paying up front or having the funds automatically deducted from their bank account: no more indicating up for sessions and paying your $12. That attains sense from a business perspective( and may be good for your diet, too ), but it removes some financial flexibility that members might need.

If Weight Watchers works well for Oprahs physical and fiscal health, Im delighted for her. But anyone who tries to ride the volatile rollercoaster of Weight Watchers stock by betting on her ability to get the weight off and keep it off needs to consult not a diet doctor but a psychiatrist. Thats risky speculation of the most ridiculous kind: do you see yourself planting spy cameras in the room where Oprah will go for her weekly weigh-ins, in search of clues to the contents of the next tweet? Similarly, if you need to lose weight and want to pursue a weight loss program, pick the one thats right for you and your lifestyle , not the one that has the shiniest celebrity endorsement.

Do what Oprah did , not what she says. Before promoting Weight Watchers wildly and buying the stock, she tried out the weight loss system personally and scrutinized its financials very carefully. Her $43 m investment in the stock, at the time she made it, was a mere 1.4% of her estimated 2015 net worth of$ 3bn the equivalent of play money. So if you do feel the urge to pull an Oprah, keep your stake to within those limits: 1% or even less of your total investable capital and not only your net worth( because, since youre not a billionaire, your losses will matter more ). And before you sign up to a multi-month commitment with Weight Watchers, take a long, hard look at what youre committing to like Oprah did and see if its something you can live with.

Weight Watchers sees the ‘Oprah effect’- but it may not last

Weight Watchers Sees The 'Oprah Effect'- But It May Not Last

Weight Watchers Sees The 'Oprah Effect'- But It May Not Last

Weight Watchers Sees The 'Oprah Effect'- But It May Not Last

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