Is WWE Ready For A Big Push?

October 8, 2017 - WWE

World Wrestling Entertainment (WWE) stands alone as a largest veteran wrestling classification in a world. The association has been run by Vince McMahon given 1983, when he purchased a primogenitor company of a World Wrestling Federation, as it was afterwards named, from his father.

WWE has enjoyed dual primary bang times, a initial occurring in a 1980s, when a “Rock ‘n Wrestling” epoch of Hulk Hogan was during a peak. In a 1980s, veteran wrestling was a child-friendly product, as Hogan urged children to contend their prayers and eat their vitamins. Then in a 1990s, challenged by Ted Turner’s World Championship Wrestling, Vince McMahon achieved success holding a product in an edgier direction, led by “Stone Cold” Steve Austin and Dwayne “The Rock” Johnson. During a 1990s, WWE also launched a flagship radio program, WWE Raw, that now front on Monday evenings on USA Network in a United States.

Today, WWE is by distant a largest veteran wrestling classification in a world, and has legions of clinging fans. WWE derives a revenues from 3 primary sources: a WWE Network, live events, and radio revenues from WWE Raw, Smackdown Live, Total Bellas, and other radio shows. These 3 sources accounted for approximately 76% of a company’s income over a past twelve months, according to SEC filings.

Source: Author, formed on information from SEC filings

The WWE Network

The WWE Network was launched on Feb 24, 2014, and has dramatically altered WWE’s revenues. Generally, WWE binds a series of annual special events, a many critical being Wrestlemania. Wrestlemania has been hold in late Mar or early Apr given 1985, and is a singular biggest eventuality on WWE’s calendar. The many new Wrestlemania was Wrestlemania 33, hold in a Camping World Stadium in Orlando and attracting over 75,000 fans. WWE special events were formerly distributed around pay-per-view, many like UFC events and critical fighting matches. However, with a appearance of a WWE Network, that indication has significantly transformed, with a WWE Network mostly supplanting pay-per-view revenue.

The WWE Network is accessible to subscribers for usually $9.99 per month, rather than pay-per-views that mostly cost adult to $60, and includes all WWE special events, shown live. The Network also front a series of other programs, including live weekly shows such as 205 Live and WWE NXT. Further, a Network includes a immeasurable video-on-demand library, including thousands of hours of WWE programming from a past thirty years, in further to video libraries performed from a series of gone pro wrestling organizations, including Ted Turner’s former World Championship Wrestling. Like Netflix (NFLX) and other streaming platforms, a WWE Network is accessible online as good as regulating a specialized app on all forms of gaming, video streaming, mobile, and other platforms. The WWE Network is accessible in roughly all ubiquitous markets, including a United Kingdom, Canada, a Middle East, and Australia, among others.

The WWE Network has mostly been successful given a 2014 launch, with subscriber numbers surpassing 1.6 million, as of a final quarterly filing. The revenues from a WWE Network surpass a revenues that were formerly generated by pay-per-view events and tend to be some-more stable, given it is a subscription use rather than particular purchases by consumers for any special event.

Source: Author, formed on information from SEC filings

In 2013, a final year before to a introduction of a WWE Network, pay-per-view events generated $82.5 million in revenue, compared to $168.3 million in income generated by subscriptions to a WWE Network in 2016. Over a past twelve months, WWE Network subscriber income represents 23% of WWE’s revenue, and TTM subscriber income has increasing 12% over a prior year. WWE Network subscriptions numbers are cyclical, and tend to rise during Wrestlemania in late Mar or early April, given it is a WWE’s largest and many critical eventuality any yeah.

Live Events

Each WWE special eventuality and in-ring radio uncover is filmed in an locus or stadium, in front of a profitable audience. Additionally, WWE binds a series of other live events any years (“house shows”) that are hold for a live assembly only, and are not partial of any radio show. Ticket sales from live events continues to make adult a estimable apportionment of WWE revenue, contributing approximately 19% over a past twelve months to WWE’s revenue. At live events, a poignant volume of sell such during T-shirts and other wardrobe is also sold, and a income from this sell accounted for 4% of WWE’s income in 2016.

Source: Author, formed on information from SEC filings

As shown, live eventuality assemblage has risen solemnly over a past few years, rising 7% in a trailing twelve months, year-over-year. Revenue from live events has risen 12% over a same duration of time, due to aloft normal sheet prices. Like WWE Network subscriber numbers, live eventuality assemblage and income is cyclical, with assemblage being somewhat aloft during a run-up to Wrestlemania (the “Road to Wrestlemania”), and with revenues being top for Wrestlemania itself.

Television

The largest apportionment of WWE’s revenues comes from radio rights. Television income done adult 33% of WWE’s revenues over a past twelve months, and rose 33% over a same duration one year ago. Television revenues are essentially driven by a contracts to publish WWE Raw and Smackdown Live on USA Network. However, WWE Raw radio ratings, after peaking in 1999 and 2000, have been in a delayed decrease given 2006.

Source: Author, formed on information from Gerweck

This decrease in ratings is cryptic for WWE given radio revenues make adult a poignant apportionment of WWE’s revenues, and disappearing ratings could lead to reduced radio revenues when it comes time to replenish and renegotiate a radio rights contracts for WWE Raw, Smackdown Live, and other WWE radio programming. Further, disappearing radio ratings might harm a ability of WWE to attract new fans to a product, given they might lead to reduction word-of-mouth about a product, fewer fans attending live events, fewer Network subscribers, and so on. It is also probable that amicable media and other avenues could reinstate these functions of television, nonetheless ratings declines are still potentially cryptic when a association attempts to boost a value of a radio deals.

I trust that disappearing radio ratings are problematic, as it might prove disappearing seductiveness from fans, and a shrinking series of fans. This might be due in partial to over-saturation of veteran wrestling products (the WWE alone produces 7 hours per week of live wrestling, and an additional three-hour special each dual to 4 weeks). Another cause contributing to these declines might be a miss of star-power in general, as there is no Hulk Hogan or Steve Austin-level luminary in WWE during present, and fan disappointment with certain storylines and artistic decisions. we trust that declines in radio viewership will eventually delayed or stop WWE Network subscriber expansion and extent a income expansion of a association as a whole.

Valuation

Based on my research of WWE’s business, we trust that WWE is overpriced. The association now trades during a price/earnings ratio of over 70, that is not tolerable but poignant gain growth.

Source: Stockrow

Over a past twelve months, WWE has been handling during distinction margins of usually 6%, and we have not seen indications that these margins will urge significantly in a future. we plan that revenues will grow by approximately 3% per year, formed on income expansion of 4% for live events, and negligence expansion in both WWE Network subscriptions and in WWE radio revenue. In my view, a former is impending marketplace saturation, and a latter will be formidable to boost in light of disappearing ratings for WWE Raw and other WWE programs. Based on these projections, we value WWE shares during approximately $20, that is 15% reduce than their stream trade price. Therefore, during this stream price, we do not suggest purchasing WWE shares until a association demonstrates an ability to boost their radio ratings or to boost distinction margins.

Disclosure: I/we have no positions in any bonds mentioned, and no skeleton to trigger any positions within a subsequent 72 hours.

I wrote this essay myself, and it expresses my possess opinions. we am not receiving remuneration for it (other than from Seeking Alpha). we have no business attribute with any association whose batch is mentioned in this article.

source ⦿ https://seekingalpha.com/article/4112079-wwe-ready-big-push

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