Investors should shed Nutrisystem, Weight Watchers

Dieters are discovering they can lose weight for free using apps.

By Jonathan Berr Mar 6, 2012 12:50PM
Image: Woman and refrigerator (© my doctor urged me to lose weight, I was overwhelmed by the plethora of dieting options. Then I discovered an easy-to-use free app called Lose It that made it simple for me to track my calorie intake. It worked like a charm and I have lost 20 pounds since the start of the year. 

While this is great news for me -- and my wife who has shed 30 pounds -- this is a worrying trend for shareholders of Nutrisystem (NTRI) and Weight Watchers International  (WTW).

The hardest thing for any company is to compete against a rival who gives away a product for free. Microsoft  (MSFT) has faced this problem for years with the Linux operating system, while Apple (AAPL) is fending off a challenge from Google's (GOOG) Android mobile operating system. Both Linux and Android are open-source platforms available for free. Linux's rising popularity is helping push the market share of Microsoft's Windows platform below 90%. Android's market share was 46.3% in the fourth quarter, versus 30% for Apple's iOS, according to Nielsen.

For the weight-loss business, the challenges are similar. The diet industry has to convince heavy people like me that their products and services will enable us to defy the odds and lose weight and keep it off. It's a tough sell given that research has found that "80% of people who have lost weight regain all of it, or more, after two years," according to Women's Health.

Given those daunting odds, why should I put money into a diet program? Many investors and dieters seem to feel the same way.

Nutrisystem, which Monday reported disappointing earnings, is not cheap. The company is running a special offer, which includes its pre-packaged foods, for $195.44 a month. Weight Watchers, which issued disappointing earnings and guidance last year, is less expensive. The company is advertising a three-month savings plan for $56.85 with monthly charges of $18.95 thereafter.   Doctors I consulted seemed to prefer Weight Watchers and the South Beach diet over Nutrisystem.

Losing weight is not rocket science, as I have discovered, though I remain concerned about regaining the pounds that I have lost. I eat right and exercise regularly. My wife makes sure that I keep going to the gym. Lose It keeps me honest by making me aware of the impact of the foods that I consume on my overall well-being. I don't see any reason to change something that clearly is working to my benefit.

Nutrisystem and Weight Watchers face an uphill battle to convince the public that their services are worth the money. As apps become more popular, that challenge will get even more difficult.  These shares should be avoided.

Jonathan Berr is nowhere near his goal weight. He owns no shares listed here.


Mar 6, 2012 3:02PM

WTW is a horrible investment.  After this stock buyback is done they will have around $2.5B in debt on the books.  Earnings growth at 12% a year, and they haven't even factored in the enourmous debt/interest payment per quarter yet.  WTW is one of the worst investments in this market.


Then on the actual products usefulness, WTW is really a scam, to lose weight all you have to do is maintain the caloric intake of what you want to weigh.  You can figure out what that is and your body will go to that weight.  Just make sure to do a full body workout and sleep right.  WTW might give motivation, but really, as gas continues to go up, groceries go up, and other costs rise (thanks Ben), how many people will have extra money to spend on WTW when they can do it for free. 


To use the analogy of the writer, if someone gave you an Android for free that made free calls/3G/4G, why would you ever buy an iPhone on a monthly plan?  People who would choose the iphone in this senerio would also choose to buy WTW.

Mar 6, 2012 2:35PM
I believe you have lost sight of the meaning of this article Mike, It's about investing and the author is saying it is a bad investment. I have to agree. I'm sure Weight Watchers is great but that doesn't make it a great investment.
Mar 6, 2012 3:35PM
Well gee then  Mike - Buy all the stock you want - for me I think I will pass! Too many great investments out there to take a chance.
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