Shares of World Wrestling Entertainment (NYSE:WWE) have soared in recent months, increasing in value fourfold following the signing of distribution agreements with USA Network and Fox.
Fox will carry WWE’s SmackDown Live, while USA will carry WWE’s uber-popular Monday Night Raw. Furthermore, WWE’s streaming service that transmits content directly to customers has also been a raging success. More than two million subscribers have signed up as of the summer of 2018. The company’s second quarter earnings were the highest ever in terms of revenue. WWE’s operating income has doubled to reach more than $21 million. Once the forementioned broadcasting agreements make an impact on next year’s financial statements, the company will be in full stride.
Trading at around $94 dollars per share, WWE has a fairly hefty valuation. All in all, the stock is priced at about 120 times trailing earnings. The current price level is about 70 times 2018’s estimates. It is possible the company’s earnings will increase 20 percent or more across the next half-decade yet much of WWE’s value is already priced into the stock. It is awfully difficult to justify a substantial investment in WWE at the current valuation.
Much of WWE’s revenue growth stems from the business’s media segment. The company distributes content across the world. Indeed, WWE wrestling matches are popular in numerous countries outside of the United States. Even though attendance has decreased and ticket prices have declined, royalties are climbing as overall demand for consumer products continues to increase. WWE merchandise sales are especially strong. The growing popularity of wrestling matches reinforces merchandise sales that much more.
WWE will do business with Fox and USA for at least the next five years. Morgan Stanley assigned the stock its overweight rating in response to these mammoth deals, elevating the target from $60 to $100. The question is whether WWE can maintain the momentum and continue to grow. There is no doubt WWE is growing at the moment. The company anticipates revenue stemming from core content will increase from about $235 million this past year to nearly $500 million in the next three years.
Part of the appeal of WWE is the fact that the company has diversified its business. WWE has markets outside of the United States. The company continues to add wrestlers from foreign countries like Mexico and Japan. WWE is even going as far as training wrestlers who hail from China. The company has content deals for TV coverage across the globe. WWE’s streaming service is available just about everywhere. This means nearly everyone who has an interest in wrestling can access WWE matches regardless of their position on the globe.
Cable companies are losing market share as the internet grows and people shift toward video games and other forms of entertainment. The plain truth of the matter is people are cutting the cord at record rates. Many are moving toward streaming services such as Hulu and Netflix. WWE also provides its own streaming service. The fact that WWE has invested in live sports, offering weekly streams of live wrestling matches makes the company that much more appealing. Though live streams do not monetize comparably well, the bottom line is wrestling is attracting the eyes and ears of more and more people as time progresses. It does not matter that people are cutting the cord. Those who keep cable will continue to find their way to WWE content. Those who rely on the web will pay for WWE streaming content.
Yahoo! Finance reports the average expectations of the near-dozen analysts tracking WWE are $1.41 per share in the year ahead. This figure represents more than a 50 percent increase over WWE’s expected earnings per share in 2018. This per share amount would match the company’s forward price-to-earnings ratio of 53. If WWE can meet such expectations, there is an argument to be made that it is fairly priced.
If you own the stock, consider holding for a while longer. If you have been a stockholder for several months or longer, there is no harm in profit-taking yet there is also no reason to fully divest from this powerhouse of a company. WWE appears to be a solid long-term investment.
Regards,
Ethan Warrick
Editor
Wealth Authority
