Is WWE Stock Down for the Count?

By | Published January 23rd, 2013

On Sunday, January 27, 2013 World Wrestling Entertainment, Inc. held its annual Royal Rumble pay-per-view. This event, along with Wrestlemania, Summer Slam, and Survivor Series, is one of the “big four” live pay-per-view events produced by the company each year. Many analysts believe that there was a lot riding on this event as the company has faced some struggles over the past couple of years. With the stock hovering under $15 coupled with a host of financial and product/talent issues, it might be time to ask: is the WWE stock down for the count?

WWE logo

World Wrestling Entertainment (WWE) has never been a strong stock for investors; for the most part is a bit of niche play for those interested in professional wrestling. Furthermore, some dividend investors seeking high dividend yields from small cap stocks are also be interested in the company’s 3.09% yield (however, that dividend yield is a bit deceiving and it will be discussed in more detail below).

WWE is unique as it is really the only company of its kind that trades on major stock exchanges. Though is has developed into a bona fide entertainment company, operating in other sectors other than professional wrestling events, the wrestling area of its business is still the money maker. There is no other company like it; though there might be a reason for this.

There is no denying that the WWE has some sort of cultural significance;  some even say that professional wrestling and jazz are the only two truly American art forms. However, this does not mean the company is suited for publicly-traded status and investors’ portfolios.

Financial Flops

WWE has struggled in recent years to find stable financial ground, which has troubled investors. It has especially struggled in regards to earnings and revenues, which have been either relatively flat or falling. In the third quarter of 2012, the company’s revenue was $104.2 million compared to the $108.5 million in revenue over the same period in 2011. Net income was $3.5 million, or 5 cents per share, versus $10.6 million, or 14 cents per share, in the third quarter of 2011.

It is hard to say whether these numbers were substantially lower solely because of poor performance or other reasons such as increased expenses due to growth. But there is no denying that regardless of what point of view one might take one the numbers, they are alarmingly low.

Viewers Declining

It has not helped that television ratings and pay-per-view buys have been on the decline as well. WWE has struggled to maintain high viewership in the coveted 18-34 year old demographic for its flagship program, Monday Night Raw. Part of this reason is due to its recent competition from the NFL’s Monday Night Football; regardless of its direct television competition Raw ratings are not as high as they once were.

Furthermore, pay-per-view buys for the monthly showcase events have been on the decline. With the exception of the “big four” pay-per-view events, there has been a lack of revenue from these events. It has been so bad that WWE has floated the idea of cutting the number of big PPV events per year as a way to help drive up demand from consumers. It is just one part of the continuing struggling for the WWE.

Other Units Struggling, Too

Aside from the Live and Televised Events arm of business, WWE has also struggled in its WWE Studios and Consumer Products divisions as well. WWE Studios is a producer of feature films starring a number of WWE Superstars. These films, however, usually do not do that well when they are wide released and only turn some sort of a profit when released on Home Video; Home Video profits are booked in the Consumer Product Sector.

The Consumer Product arm of business also took a recent blow, adding to the overall concerns of WWE business. THQ, which develops and publish WWE video games, has been in financial hardships over the past couple of years. THQ’s troubles have trickled down to the WWE.  Licensing revenue has been lower due to THQ scrapping a WWE game in development in 2012. More over, it was announced in December of 2012 that THQ filed for Chapter 11 bankruptcy, furthering the complications of WWE’s relationship.

Dividend Disaster

Since WWE’s all-time high share price of $18.67 on April 23, 2008 the stock is down roughly -17%. Many dividend investors seeking a nice yield are drawn to WWE’s dividend yield of 5.81%, but these investors need to take into account that this yield is high because of a relatively weak share price, which might not be sustainable.

The company’s quarterly dividend paid out to shareholders is 12 cents per share. However, the dividend payout ratio is up around 342%, an alarming number. And even though the company cut its quarterly dividend from 36 cents per share to its current 12 cents per share status in June of 2011, the payout ratio remains substantially high as earnings per share are relatively weak. It is probably a safe bet that the company will cut its dividend again sometime in the future if it wants to stay afloat.

Looking Forward

It is a bit troublesome that the company needs to constantly turn back to former superstars to increase ratings and consumer demand. For example, in last year’s Wrestlemania pay-per-view, the main draws for viewers were a match  between semi-retired wrestlers Triple H and the Undertaker and a match between wrestler-turned-movie star Dwayne “The Rock” Johnson and the current face of the company, John Cena.

Since then the company has seen WWE/UFC superstar Brock Lesnar come back to compete in a few matches to draw ratings. In January 2013′s Royal Rumble Dwayne “The Rock” Johnson headlined versus CM Punk for the WWE Championship and the company allowed The Rock, a part-time wrestler at best, win the title. The company is continually taking advantage of the popularity of former superstars to help boost ratings. However, this model is not sustainable. It is just a matter of time before the company needs to really push towards its future with younger talent, or else it will face a series of diminishing returns.

Competition Carousel

Back in the late 1990′s WWE faced its stiffest competition from Ted Turner’s World Championship Wrestling (WCW). Since buying WCW in March 2001, WWE has not faced a great deal of competition (possibly a contributing factor in the company’s current troubles). While there are some smaller wrestling companies out there like Total Nonstop Action (TNA) and Ring of Honor (ROH), nothing has caused WWE to proactively adapt and evolve to a better business model. When companies face little competition, they can become complacent, leading to disastrous business models. This is partially a reason for WWE’s poor vision for the future.

The closest thing to a real competitor that WWE has had to compete with in recent years are various Mixed Martial Arts (MMA) products, specifically the UFC. The UFC’s non-staged fight product has squeezed out some pay-per-view buys from WWE, as consumers make the tough decision of which events to buy. However, it is a bit hard to say whether WWE and UFC are complementary or supplementary goods; nonetheless, with little in terms of big-name pro wrestling competition, UFC is the closest business WWE needs to compete with right now.

Will WWE Ever Be Put Up For Sale?

Vince McMahon and his family built the WWE to what it is today. However, his stranglehold of power in the company could be negatively affecting overall company growth. Most reports suggest that McMahon is a notorious micro-manager; he has at least some input in nearly every area of the company. While many like to see a hands-on CEO, it does not always mean that it is the most effective way in overseeing and guiding a company to the future.

Though it seems like the WWE has some sort of line of succession coming from Vince McMahon and his family, it might not be that far fetched of an idea for the entertainment company to sell. If the company continues to face financial hardships, no solution can truly be off the table.

The company currently has a relationship with NBC, with its television programs broadcasted on USA Networks, SyFy Network, and Hulu Plus, all NBC brands. Down the line there might be a time when NBC’s parent company Comcast  (CMCSA) might want to dive deeper into content product and think about purchasing the WWE.

Another possibility  is the Madison Square Garden Company stepping in to acquire the WWE. MSG already has a relationship with the WWE as the wrestling company has been feature at Madison Square Garden in some of its most memorable events. MSG also operates in segments very similar to WWE’s current business: MSG Media, MSG Entertainment, and MSG Sports. Even if the acquisition of WWE is not the best for MSG, as any Knicks or Rangers fan will tell you, CEO James Dolan is not always the best when it comes to making business decisions.

The Bottom Line

It’s unlikely that the WWE will go anywhere anytime soon. The company’s wrestling promotion is a significant part of American culture. However, investors should be wary of the struggles that the wrestling and entertainment company faces going forward. Even dividend seeking investors should be careful in putting too much into a position with WWE — its dividend could once again be in danger, which would hurt the stock’s share price significantly. WWE stock may be down for the 1-2-3.