Like the weight of its most famous customer and spokesperson, Oprah Winfrey, the stock price of WW International Inc. (NASDAQ: WW), formerly known as Weight Watchers International, has fluctuated significantly over the past 10 years. At a recent closing price around $31.25, the share price is a bit more than 10% higher than it was 10 years ago. In the same period, the S&P 500 has increased by more than 180%.

WW recently announced fourth-quarter results that beat analysts’ expectations and led to an 8% jump in the share price. The increase was short-lived, however, as investors’ worries over the spread of the COVID-19 coronavirus continued to weigh on the stock market. By the end of the day, shares of WW closed at $31.26, a drop of 10.2%. The S&P 500 closed down about 0.4% for the day.

The sharp drop was not related to WW’s outlook. The company touted record subscriber growth and Wall Street’s initial reaction was highly positive. The sinking stock price likely reflected both investors’ concern over the equity markets and a possible weakness in WW’s prospects.

A Look at the Numbers

Quarterly revenues were essentially flat year over year at $288.7 million. Earnings per share (EPS), however, dipped 33% from $0.63 to $0.42. Gross profit fell by $10 million to about $175 million, and marketing expenses rose by about $7 million.

WW depends heavily on its subscriber totals and these were strong. The company ended the quarter and the year with more than 5 million members. Chief Financial Officer Nick Hotchkin crowed a little:

Subscriber growth trends improved each quarter throughout the year, a testament to our global team’s focus and efforts to improve marketing execution. Member recruitment so far in 2020 has been well above the prior year, as expected, and is reflected in revenue and earnings growth guidance for full-year 2020.

That guidance included full-year 2020 net revenue rising from $1.41 billion to $1.6 billion (up 13%), and EPS was forecast in a range of $2.15 to $2.40. Earnings in 2019 totaled $1.72 per share. Analysts had estimated 2020 EPS at $2.22 and revenues at $1.55 billion. The current fiscal year includes a 53rd week, and the company’s guidance includes a $0.06 per share negative impact from “seasonally high marketing activity in the 53rd week.”

A Deeper Look at Subscriber Numbers

At the end of 2019, WW had about 4.2 million subscribers, of which nearly 3.0 million were Digital subscribers. Included were approximately 1.3 million Studio + Digital subscribers, who could attend approximately 29,000 workshops each week around the world run by some 8,200 coaches. The Digital subscriber total includes the company’s higher priced Personal Coaching + Digital subscribers.

The year-end total of 4.2 million subscribers was a record and a year-over-year increase of 8%. Still, revenues were flat and gross profit was down. There are at least two things to consider.

First is churn, the percentage difference of new to old subscribers. This metric is common among telecom companies and publishers. WW reports incoming subscribers to its Digital service and to its Studio + Digital services separately, so it’s possible to figure out where the growth is.

There were 1.65 million incoming Digital subscribers during 2019. At the end of the year, the total number of Digital subscribers was 1.87 million. Incoming subscribers increased by 32% in the year, more than twice the 15% increase in end-of-year subscribers.

The number of incoming Studio + Digital subscribers rose by 7.1% in 2019, but by the end of the year the total had fallen by 5.8% compared with 2018.

What WW’s Numbers Mean

A Digital subscriber pays about $3.22 a week, while a Studio + Digital subscriber pays more than double that amount: $6.92 a week. A third option, Personal Coaching + Digital goes for $12.69 a week.

Digital subscriber fees rose by 7.4% to $610 million last year while Studio + Digital fees fell by 15.3% to $597.3 million. Replacing high-fee subscribers with low-fee subscribers does not drive revenue. The premium Personal Coaching + Digital subscription is intended to capture some higher end customers, but WW is not saying how many of the Digital subscribers are paying the premium price.

Combined service revenues fell by 3.5% last year to $1.23 billion. Product sales fell by 12.8% to $210 million. Total revenues of $1.44 billion were down 5% year over year.

Competition Is Fierce

The list of companies in the weight loss game is long. Organizations with weight loss program plans include Nutrisystem, Beachbody, Jenny Craig, Diet to Go, Optifast and Herbalife.

Some of these companies regularly roll out new products and diet programs. Nutrisystem launches as many of these as any of its competition. Most analysts see it as WW’s primary rival.

A recent U.S. News & World Report poll shows that competition goes well beyond the commercial diet segment. Diets based on people’s own cooking include popular choices like the Mediterranean diet, the DASH diet and the Mayo Clinic diet. Most people who follow these do not subscribe to commercial diet plans, and a few include some restaurant foods.

The company’s name change from Weight Watchers to WW signaled a change in focus from losing weight to wellness and eating better. That change sliced into WW’s food sales.

Keeping up with the ever-changing universe of health, wellness and weight loss must be a daunting task. WW has been a publicly traded company for more than 40 years, though, and it has not only survived, but prospered.

The world is moving faster now, and in order to win in a field with so many competitors, being first with the next big thing is vital. Do WW and Oprah have what it takes to lead the pack? Can they fix the short-term issues on a timeline investors will buy as a new beginning of long-term growth?

The simplest way to measure WW’s short-term success is to keep an eye on the revenue breakdown. The company is predicting 13% revenue growth this year. How close it comes will tell the tale.

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