WWE "Smackdown" Waiting To Happen or "Raw" Opportunity?
Chad is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
WWE (NYSE: WWE) is a "integrated media and entertainment company" according to Yahoo Finance, but let's get real this is a wrestling company. WWE may branch out and put it's stars in movies and do other things, but the real reason WWE exists is to put on wrestling events. Whether you are a die hard fan or just think it's men running around in their underwear this company is one I believe merits more investigation.
WWE used to be a dividend investors dream. In the past you could buy shares for about where they are now, but the dividend was $1.44 annually and you could grab a yield of 14%+. Those days are over as the McMahon family and the company realized that was not sustainable. Today WWE still pays a respectable $0.48 annually which gives a current yield of 4.95%. While 4.95% is nothing to be ashamed of in this interest rate environment, the real question is what can WWE do to increase it's earnings in the future and what are the risks?
The Challenges:
Whether the company likes it or not WWE is tied to the health of the economy. Fans are just not going to spend the standard $49.95 per pay-per-view or buy tickets to the shows unless they are confident in their next paycheck. The company's movie division using it's superstars as characters has repeatedly turned in disappointing performances. WWE has also changed their weekly shows by going from the "Attitude Era" where superstars said what they wanted to working within a PG format. This has alienated some older fans because they preferred these "Attitude Era" days. One of the most consistent concerns about the WWE has been what happens if Vincent K McMahon isn't around to run things? Vince is the end all be all of WWE, Chairman of the Board and CEO, helping with story lines, and even participating in ring action.
The Opportunities:
The PG format change will longer term bring more fans into the fold. A show that a 10 year old can watch is a good long term investment (26% of WWE fans are under 21). This same 10 year old in theory becomes the 25, 35 or 40+ year old who still watches and now has his/her own money to spend on things like merchandise, pay-per-views and tickets. WWE has better "bench strength" behind Mr. McMahon then people realize, lead by Paul Levesque otherwise known as "Triple H". Paul is one of the biggest in-ring stars in history and has repeatedly shown he knows what the fans want. Stephanie McMahon (Vince's daughter) is EVP of Creative and has held her own in what is generally seen as a "man's" business. Recently John Laurinaitis has gone from an executive no one knows, to one of the great heel general managers of the Monday Night Raw show. WWE has also done a good job of licensing some of it's content to both Hulu and Netflix.
Now what about the stock? WWE stock has the following stats:
Current Price: $9.70
P/E based on future '12 earnings: 13.47
Growth expected: 10%
Dividend Yield: 4.95%
Off 52 wk high: -31.69%
What could make WWE a good investment? WWE is a play on the turnaround in the economy The company makes most of it's money from it's shows and pay-per-views and these have been holding up well given the current environment, if the economy improves the buys will increase. Wrestlemainia XXVIII is another driver, that can be a true watershed event. The match between John Cena and Dwayne "The Rock" Johnson is one of the most anticipated in history. The Rock's presence makes this an event that people will pay to see. The mic work by certain superstars is better then it has been in years. You don't expect great comedy when watching wrestling, but that is what CM Punk and others bring to the ring every week. In addition WWE has made some smart choices with multicultural talent upgrades in the last few years with wrestlers such as Hunico, Sin Cara, Alberto Del Rio, Sheamus, the Uso's and the like. These superstars appeal to a more multicultural base and are certain to bring more fans both in the U.S. and internationally. The return of fan favorites such as The Big Show, Kane, and Chris Jericho brings the roster closer to full strength and brings better story lines.
Why buy now?
WWE has thousands of hours of prior shows and events that can be further leveraged through partnerships with Netflix and Hulu or even part of Amazon's Prime offering. WWE has a huge opportunity in not only toys but also video games as the recent WWE '12 release has shown. The financial power of the upcoming Wrestlemania (the WWE's largest annual moneymaker) is underestimated. Superstars are more entertaining on the mic then in years. WWE superstars are some of the most social media savvy which brings fans closer to the stars themselves increases their investment in watching the shows. So sit back, enjoy the action, collect the 4.95% dividend and wait to see if the stock can "fly with the greatest of ease" (Booker T).
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