This $74 Billion Hedge Fund Sold World Wrestling Entertainment Inc. Should You?

See if you think the potential outweighs the risk here.

Aug 29, 2014 at 6:45PM

Source: World Wresting Entertainment.

We should never blindly copy any investor's moves, no matter how famous, talented, or successful the investor. Still, it can be useful to keep an eye on what smart folks are doing. 13F forms can be great places to find intriguing candidates for our portfolios.

For example, a glance at the latest quarterly 13F filing of Citadel Advisors shows that it closed out its position in World Wrestling Entertainment (NYSE:WWE), selling some 772,000 shares that would be worth more than $11 million today.

Why pay attention to Citadel Advisors?
Founded and managed by Kenneth Griffin, Citadel Advisors is one of the biggest hedge fund companies around, with a reportable stock portfolio totaling $74 billion in value as of June 30. According to the folks at InsiderMonkey, Griffin and his team use "a combination of advanced computer code, complicated financial algorithms and secrecy. Griffin was using quantitative, technology-based methods before many other firms had cell phones."

Why sell World Wrestling Entertainment?
Why would the folks at Citadel, not to mention any other investor, sell World Wrestling Entertainment? Let's review a few reasons, starting with the dividend. Yes, it yields an appealing 3.6%, but the payout is $0.48 per share annually --  more than the company's earnings per share in 2011, 2012, and 2013 -- and its trailing 12-month earnings are in the red. The dividend is also a third of what it was in 2011, reminding us that these payouts do get reduced or eliminated.

Then there's World Wrestling Entertainment's business itself. These are days of rapid changes in how entertainment is delivered. Many people are dropping cable and relying on streaming services, for example. World Wrestling's pay-per-view service was struggling, so the company developed its own streaming service, a network it could sell directly to consumers, bypassing the cable middlemen and asking for $10 per month for access to all its programming. That wasn't such a crazy idea, but things have not worked out well for the company lately: After claiming 667,287 subscribers in its first 42 days, the service only netted about 33,000 more in the following three months, which ended July 31. Even worse, the churn rate was terrible, with many subscribers going out of their way to cancel.

The company's valuation is also a concern, with its recent P/E ratio suffering from net losses, its forward P/E near 23, and its price-to-sales ratio of 2.1 slightly above its five-year average of an even two. Believers see this as an attractive entry point, but the stock doesn't seem to be at screaming-bargain level yet.

World Wrestling Entertainment has addressed some of its problems by slashing its workforce by about 7%. That can be good if a company is trimming fat, but this is being done in a more desperate environment, and at those times, muscle and bone can get cut, reducing performance potential.

Why buy World Wrestling Entertainment?
It's hard to come up with many reasons to invest in this company, given the rough patch it's going through now. It does have great international expansion plans, which could serve it well -- but many international viewers will be expected to watch programming in a language they don't understand.

It has a strong brand and many loyal fans and potential customers, too. With its business model, WWE's profitability can increase substantially if it can bring in more subscribers and boost retention of those viewers. Some see its goal of 1.3 million subscribers (or more) by the end of this year as achievable, and they like its licensing agreements, too, for its show Raw on the USA Network and SmackDown on SyFy. Bulls note that streaming-video company Netflix started small as well.

The 3.6% dividend yield is attractive, but the company has reduced its payout before and may well do so again.

The bottom line here is that you can find great potential and far less risk in other stocks. If you own shares, you might want to join Citadel Advisors and sell -- or at least watch carefully for signs of further deterioration (or success, which is possible). With some more promising numbers for its streaming service, this company will look a lot more attractive.

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Longtime Fool specialist Selena Maranjian, whom you can follow on Twitter, owns shares of Apple, Google (C shares), and Netflix. The Motley Fool recommends Apple, Google (A shares), Google (C shares), and Netflix. The Motley Fool owns shares of Apple, Google (A shares), Google (C shares), and Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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