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Oprah Winfrey: Investment strategy

Oprah Winfrey: Investment strategy
Blog, Strategy Steps

Oprah Winfrey: Investment strategy

In 2015, media billionaire Oprah Winfrey bought 10% of WW’s (formally known as Weight Watchers) equity for $43.2 million. Oprah bought her shares at $6.79 each, with an option on another 5% stock at the same price. The stock price immediately rose to $13.92 after her initial purchase. Oprah bought, despite declines in revenue of 19% leading to her decision, a members meetings drop of 20% and an overall membership drop of 38% over the period from 2011 to 2014. She may only sell these shares in 2020.

Oprah Winfrey

If Oprah Winfrey purchased all of the 15% stock available to her, she would have paid $63.9 mill, which soon after purchase would have been worth $130,077,172. Some attribute this rise in value to her involvement in promoting the brand. A profit of $66,627,172 at a percentage return of 105.1%. Of course, the share price could rise, fall or stay the same by 2020, when Oprah has the option to sell. At the outset, her return on investment looks exceptional. Here are my calculations:

Share price Cost Equity Shares
$6.79 $42,300,000.00 10% 6229750
$6.79 $21,150,000.00 5% 3114875
$6.79 $63,450,000.00 15.00% 9344624
       
Share price Value @ 02/09/2018   Profit
$13.92 $130,077,172.31   $66,627,172.31

So how did Oprah know that these were the shares to buy, at a time when their value was sliding so dramatically? Of course the shares may well have been undervalued, compared to net asset value, but WW operating profits were in decline. The simplistic answer would be that everything Oprah touches turns to gold. So why wouldn’t a windfall appear if her marketing pulling power would be enormous? The reason for the 2015 rise in stock value, cannot only be attributed to Oprah, since in 2016 the share price dropped again. The business fundamentals must have been at play, a year after her initial 10% stock purchase.

To quote her comments to USA Today, she said at the time that “WW has given me the tools to begin to make the lasting shift that I and so many of us who are struggling with weight have longed for. I believe in the program so much I decided to invest in the company and partner in its evolution.” The WW Stock lost nearly 73% of its value in 2015. Winfrey must have been pretty bullish that her investment, with her promotional capability could improve. So what happened since then?

In 2016, media said that Ms Winfrey had lost $29 million as shares tanked. Primarily due to first quarter operating losses. Seemingly, share prices rose when Oprah advised that she had lost weight. Other than the ‘Oprah Effect’, the company’s increased investment in digital engagement was starting to pay off.

Somewhat hidden in 2016, there were encouraging signs to loyal investors. Time passed. Now, on September 2018, the WW share price stands at $75.10.

Oprah Winfrey WW Shares

Here are my revised numbers:

Share price Value @ 02/09/2018 Profit
$75.10 $5,003,700,640.65 $701,781,296.02

Currently, Oprah Winfrey is enjoying a return on investment of no less that 1,106.4%. To invest around $60 mill in 2015 and convert it to over $700 mill is astonishing. Like I said earlier, this could rise or fall with share price fluctuations.

The profit projections for the shares at net present value are fictitious, as Oprah has sold some of her stock at $56.15 in the interim, realizing a huge profit. Why she sold or was allowed to sell before 2020, obviously is open to speculation. The value of the investment strategy is clear though. It was a successful strategy and who knows, the cash she raised in her profits may be better placed elsewhere.

Business failures

Oprah Winfrey, has had business investment failures. After investing $500 million into her OWN TV network, a series if programmes failed to connect with audiences. Her team did not understand the relentless nature of cable TV. Programme choices were misfiring, despite choosing seasoned performers. They needed shows that extended far beyond her ‘change the world’ philosophy. A difficult makeover, changed things, slowly. Wall Street softened, when the cash positive projections appeared for the end of 2012.

The difficulties Oprah experienced in launching the OWN Network came at a personal price. She admitted to having her confidence shaken and to being affected by depression. The financial turnaround changed this. Finally, the company started making money and investor confidence rose. Her story of overcoming adversity was broadcast extensively in the media. It was a long hard, perilous journey.

In 1998, Oprah starred in the box office movie failure, Beloved. This frustration too, resulted in her overeating and bouts of depression. Lessons needed to be learnt and they were.

Here are some questions to reflect on. What is the secret to this profitable investment in WW? :

  1. Why did the share price rise so far, so fast from 2015 – 2018?
  2. Why did Oprah Winfrey really invest in WW stock in the first place?
  3. How much risk did Oprah take by investing?
  4. What is the current 2020 forecast for the price of the shares?
  5. How much of these share price rises are due to investor speculation and an association with Oprah?
  6. How much did WW business strategy play in lifting the share price?

Like me, you could think about these questions, before reading Oprah’s Investment Secret below. You could also post your comments and answers to these questions in the comments section. There is a plethora of information on the internet, to substantiate your arguments.

Thank you to those who got into the numbers or analyzed and shared some of your answers regards the questions above. There really are some interesting conundrums to learn from here.

Having looked at the questions above, your answers and mine are likely to be far removed from the way Oprah Winfrey would look at questions pertaining to her investment strategy.

Oprah’s Investment Strategy

The 6 questions above miss Oprah’s investment rationale and the secret to her success in buying the equity. Her financial investments are not she says, driven from a place of wanting money, but her investment in her ‘inner life’. Cynics would argue that she would say this, because that is what her brand sells.

Leaving cynicism aside for a moment, Oprah speaks of protection from the foibles and fluctuations of the outside world, through a strong sanctuary provided by her inner world. This grounds her and prevents her from getting lost when important decisions, including those regarding money need to be made. Many people, including her nearest and dearest, have criticised her decisions and how she makes them. Their and society’s interpretation of success and risk, seemingly came from a different place to her.

Since American culture thrives on self improvement, Oprah embraces this ethos. Oprah encourages people to be sufficiently self aware to be connected to their ‘inner voice.’ This allows you to ‘follow your passion and be true to yourself.’ Some would call this instinct, with heightened awareness.

So when investing, Oprah first and foremost invests in herself. She invests in what matters to her most. In the case of WW, it mattered to her that the company survives and thrives. Her personal struggle with her weight needed the support that the company could provide. Hence, her investment at a time when the business fundamentals looked bleak, made perfect sense to her. Oprah’s passion, her pulling power and her narrative could the most important reason that grew WW Stock over 1000%. My view is that it was only part of the reason for share price growth.

Since competitors could also purchase or attract resources such as marketing, technology, skills and equipment – the key difference is that Oprah’s Investment strategy involved a compelling influence of how people felt about themselves. Audiences trust Oprah, since she has a history and a good reputation of telling people daily, that it is good to want a better life. Also its beneficial to feel good about yourself. Oprah Winfrey is a phenomenal example that, “a strong inner life, affects her outer life.” This is what directs her investment decision making.

Oprah’s investment end goal, is untypically not personal success. It is the role that she can play in the success of others. She says repeatedly. “That the real reason why I am here is to connect people with themselves.” How does this compare as a strategy statement? How would this statement affect all the messages that Oprah sends from her platform? How do her messages compare with those from someone like Donald Trump’s platform?

Oprah says our purpose that drives our decisions, is within ourselves. What do you think?

Citations: Oprah buys 10% ; Market watch; Oprah loses $29mil ; OWN makeover ; The Investment Secret ; Stock sale ; Fast Company Interview

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