Weight Watchers continues to benefit from the Oprah effect.
The stock surged again Friday morning after the diet company said Oprah Winfrey will soon appear in Weight Watchers ads.
Oprah (last name no longer necessary) announced last month that she was buying a 10% stake in Weight Watchers, with an option to purchase more and bring her stake up to 15%.
She also said she would become a member of the diet company’s services as well as a member of its board of directors.
Shares of Weight Watchers more than doubled the day of the announcement. Now, Oprah is set to tell millions of people what she likes about the company in commercials.
“Oprah will be part of the upcoming winter season marketing effort, inviting prospective members to join her on her journey,” said Weight Watchers CEO James Chambers in a conference call with analysts late Thursday.
Weight Watchers also reported better than expected earnings and sales after the closing bell Thursday.
Wall Street loved the news. The stock soared nearly 30% in early trading Friday. (You get a profit! YOU get a profit!)
The company did not give any details about the creative direction of the ads, but executives hinted that Oprah would be promoting a new program the company is developing for its members that will focus more on just weight loss.
Weight Watchers needs all the help it can get. It has struggled in recent years to attract paying members now that there are so many free diet and weight loss apps for smartphones and tablets.
And even though the latest quarterly results topped forecasts, they weren’t necessarily good.
The number of active subscribers fell 13% from last year. Sales were down 21% and profits plunged more than 40%.
The stock, despite the recent Oprah lift, is still down more than 30% in 2015 and has lost 70% of its value over the past three years.
Many investors have been betting against the company. As of mid-October, nearly 75% of the company’s available shares were held by short sellers.
These investors borrow a stock and immediately sell it with the hopes of buying it back at a a lower price. They pocket the difference as a profit.
But when a stock that is heavily shorted starts to move higher on good news, the short sellers stand to lose a lot of money if they don’t quickly buy back the shares they borrowed.
That’s known on Wall Street as a short squeeze — and it looks like it’s happening with Weight Watchers.
The stock could go even higher if Oprah is able to convince many of her loyal fans to become Weight Watchers members.
And Chambers suggested that this might already be happening. The company also raised its earnings guidance for the year.
“The response to this partnership announcement has been terrific,” Chambers said, adding that “we have seen significant improvement in visitors to our website, which has translated into a strong response in the business.”
So Oprah’s Midas touch is clearly helping Weight Watchers long-suffering shareholders … as well as Oprah,
Her stake in Weight Watchers was worth $43.2 million the day she bought it. That investment is now valued at nearly $140 million.