Despite taking the equivalent of a pile-driver and a double-suplex from Wall Street and cable networks after the launch of its online WWE Network last year, World Wrestling Entertainment could be ready for a rebound, with BTIG analyst Brandon Ross initiating coverage on the stock with a “buy” rating and a $25 price target, adding that the network is a precursor for how consumers will interact with content providers in the future.
The WWE Network launched in February 2014 offering a lengthy list of content – including past matches and access to pay-per-view events – for the low price of $9.99 per month. Cable networks initially weren’t happy about the service, fearing that it would cannibalize ratings for its Monday Night Raw and Friday Night Smackdown programming, as well as take a huge bite out of lucrative PPV revenue. WWE stock traded accordingly, rising steadily on speculation that it would attract millions of subscribers, but when that proved to be overly optimistic, WWE stock plunged. Since then better subscriber numbers for the over-the-top channel (it topped 1 million customers in Q1) have helped the stock. On June 17 it closed at $16.45 per share, up 33% from the beginning of the year, but still nearly half the $30 level it traded at in early 2014. So far the upgrade has had little impact on the stock -- it was trading at $16.29, down 16 cents (1%) in afternoon trading Thursday.
In a blog post, Ross argues that while a loss of investor confidence in management has been a big overhang on the stock, that is about to change. He believes the Network is gaining subscribers, and as one of the pioneers in the concept of cutting out the distribution middle man and going direct to consumer, is on the verge of becoming more profitable.
“WWE is a vertically integrated media company that is well positioned to take of advantage of the changing media landscape, with a scaling direct-to-consumer network, increasingly valuable content, as well as global live entertainment and consumer products businesses,” Ross wrote. “Underpinning its business is a large and passionate fanbase. The value of the content and fanbase should put a floor under the stock.”
WWE Network gained about 551,000 subscribers in the first quarter, a 63% gain that was largely fueled by a WrestleMania PPV event during that period. The stock fell after those results were announced, largely because investors feared a big increase in churn after the WrestleMania event, with some predicting the service would dip below 1 million subscribers.
While Ross agrees that customer growth will be seasonal and will peak around PPV events, he believes churn won’t be as harsh as some have guessed, with overall subscribers numbering about 1.18 million in the second quarter.
“We believe there is plenty of growth ahead for the Network,” Ross wrote. “The fact that there are still PPVs being sold, despite the availability of the events for much cheaper on the Network is evidence enough.”
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