Tags
Annuities, Broadcast, Hulk Hogan, Interesting, Investing, Markets, McMahon, NBCUniversal, PPV, Price, Research, Revenues, Stock, Subscription, Television, Trading, Undervalued, Wrestling
Company Description-
World Wrestling Entertainment (WWE) is the leader in global-sports entertainment. It is a massive integrated media organization that focuses primarily on wrestling and also sees major revenue streams coming in from sales of memorabilia, film, TV, and other forms of media. For those who believe that wrestling is real, I am sorry to say it is not. It is completely scripted and is technically entertainment as compared to an actual sport. However, real injuries do occur based on the types of things that are attempted. WWE is committed to family friendly entertainment on its television programming, pay-per-view, digital media and publishing platforms. It is broadcast in more than 150 countries and in more than 30 different languages as well. Many do not realize that this company is a publicly traded company and has been so since October of 1999. The stock price of the company has reached as high as $32 dollars and is currently at $11.27 (as of 5/18/14). This company has reached over 600 million households around the world with their broadcasts and is definitely a stock worth some consideration.
Potential and Problems-
The company, run by billionaire and former wrestler Vince McMahon has seen increasing revenues for some time and expects to increase this trend in the future. That being said, the company struggled in 2013 and despite an increase in revenues, saw net income fall drastically. This was due in part to the fact that they had to take a 12 million dollar impairment charge on their WWE Studios business as well as a continued decline in revenues from the consumer products segment of the business. Although their slip in net income was large, the company still has potential to grow and increase their business, revenues, and income. It was announced in late February that superstar and fan favorite Hulk Hogan will be returning to the network in hosting roles, which should help to increase viewership as people turn on to see “Hulkmania” once again. WWE is also replacing its pay per view system with a subscription annuity revenue stream, bringing it into play with companies such as Netflix and Amazon Prime and giving WWE the ability to cater to new markets. The company has said that it will need to attract about 1.4 million subscribers to its subscription based revenue stream in order to make up for cannibalization of pay per view revenues. This may not happen within the year and the company could see some loss of revenue because of this, but from a long term standpoint this is a smart and strategic move for the companyWWE also launched the first 24-hour per day OTT serialized-sports network in the world! This is currently only available in the US and has already garnered over 700,000 subscribers, but there are plans to expand into other countries within the near future. However, the biggest impact on WWE’s stock is likely that of its new deal with NBCUniversal. A new deal was announced on Friday that ensures that revenue from NBC will increase 50%! That is a massive increase in revenue and will help to both bring WWE’s revenues and net incomes higher. Surprisingly however, the report of this deal led to a massive decline in stock price (from $19.93 at close on Thursday down to the current price of $11.27) due to previous reports that the deal with NBC would triple or double revenue as opposed to just increasing it by 50%.
Stock Analysis-
Frankly, I do not like wrestling and think it is pointless to watch. However, there are millions who feel differently from me and continue to watch WWE and its subsidiaries. As a stock, I believe this company is a very interesting option and I currently rate it a buy. After analyzing the future of the company and looking over their financial statements, cash flows, and balance sheet I believe that they have the potential to expand and continue to succeed within both the domestic market and foreign markets. The biggest reason I like this stock at the moment is because of the price. It is very underpriced and the massive drop in price over the last few days has led to this. This reaction is not what people with a stake in the company or the company itself wanted, but for investors who were keeping an eye on the stock but hadn’t quite got around to investing, the drop in price is a gift. At the current price of $11.27 the stock is seriously underpriced and is bound to go up. It may not rise in the near future, but one thing is for certain: this stock will rise again. Analyst estimates are much higher than the current price even with adjustments. Benchmark analyst Mike Hickey downgraded the rating on the stock from buy to hold after the massive drop on Friday and dropped his estimate from $29.12 to $19.96. This is a massive drop in an estimate, but his estimate is still nearly $9 above the current price. After Hickeys downgrade, 5 of the 8 analysts on Bloomberg rate the stock a buy, with 2 (1 being Hickey) rating a hold and one rating a sell. The average price estimate is about $25.50, easily double of the current stock price. There may be some adjustments based on the recent drop in price and deal with NBCUniversal, but they will surely be higher than the current price by a considerable amount. This overreaction to the deal has given investors a great opportunity to buy. Even if you are like me and have no interest in wrestling, this stock has high potential and is a definite buy to consider.