WW International (WW) - Get Report was sliding Thursday after a Morgan Stanley analyst downgraded shares of the weight-loss program operator to equal-weight from overweight, saying she was "underwhelmed by the magnitude of subscriber growth."
Shares of the New York company formerly known as Weight Watchers were down 5.4% to $29.80.
Analyst Lauren Schenk, who kept a $34 price target on the shares, said in a research note that WW's first-quarter app downloads weakened throughout the quarter and ended 18% below the first quarter of last year and 16% below the same period in 2019.
"While we continue to believe in WW's digital transformation, and the long-term margin and retention benefits that should bring, the magnitude of subscriber growth, especially with new coaching products, has underwhelmed us," Schenk said.
The analyst said she sees the reopening from the COVID-19 pandemic shutdown driving improved studio recruitment trends, but WW has "more difficult digital subscriber comps to anniversary given the strength last year, and we are concerned that in the reopening, more discretionary dollars could move back to travel, dining out, etc., rather than stay at home activities."
"Thus, tactically, we see a more balanced risk-reward over the medium term," she said.
Schenk added that WW's high subscriber churn means the company must penetrate a large percentage of its addressable market to sustainably grow.
"We think retention can continue to improve and lower churn, but will remain an impediment," she said.
The analyst said that at her $34 price target, she sees a more balanced risk reward, especially given the weaker first-quarter app download data and Morgan US Equity Strategist's downgrade of small cap and discretionary names.
"Our estimates and PT remain unchanged, but we move to the sidelines," she said.
In February, WW International beat Wall Street's fourth-quarter earnings expectations.
Revenue totaled $323.4 million, while analysts at Zacks expected the company to post $311 million. Subscription revenue for the quarter totaled $286.6 million.
The company also reported digital subscriber growth across all major geographic markets.
Last year, WW shares fell after the company was hit hard by pandemic closures.