Weight Watchers' active members fell by 15% in the fourth quarter.
Shares tumbled by over 30% after that earnings announcement.
In a note Tuesday, Credit Suisse downgraded the stock to "Underperform" from "Neutral," and explained why Weight Watchers' business is under pressure: it's not free.
Here's Credit Suisse:
"With the proliferation of free weight loss applications (and smart phones), wearables that track fitness activity, and the combination of the two, people interested in weight loss now have more options than ever to try to lose weight on their own/for free. Instead of spending at least $19.95 a month (cheapest WTW option not including promotional deals), one could choose any number of free weight loss applications or purchase a wearable for a one-time cost and attempt to lose weight without making the financial, physical and time commitment to a program like WTW."
So, there's serious competition from fitness devices and apps.
The wearables industry is booming, and will grow at a compound annual rate of 35% over the next five years, according to research by Business Insider Intelligence. And this growth will be led by smart watches. Apple Watch will launch in about a month and is forecast to account for 40% of all smart watch shipments this year.
There are many apps like MyFitnessPal that they can merge daily activity with how many calories are eaten, keep track of set fitness goals, compare these with friends', and so on.
And with a fitness device, here's how the math could work out: Weight Watchers' cheapest plan is $19.95 per month, amounting to over $200 a year. For a one-time payment of less than $200, a potential Weight Watchers client could buy a Fitbit and pair it with their smartphone.
Weight Watchers has an app that does all this, and a big support network. Last December, it launched a service where members can get 24/7 access to a coach that's been through the program.
But Credit Suisse is not convinced this will grow its membership, reported at 2.5 million people at the end of the fourth quarter:
"Without any prior experience to the WTW products, we believe the potential value of 24/7 support and personal coaching may not be fully understood by new potential recruits and this product change may struggle to be the recruitment trend panacea for WTW."
Weight Watchers shares fell by as much as 4% in trading on Tuesday. Here's the stock's performance since the 4Q earnings release; Credit Suisse revised its 12-month price target to $5 from $14.
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