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

Wwe
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.

Your cable company is scared, but you can get rich
You know cable's going away. But do you know how to profit? There's $2.2 trillion out there to be had. Currently, cable grabs a big piece of it. That won't last. And when cable falters, three companies are poised to benefit. Click here for their names. Hint: They're not Netflix, Google, and Apple. 

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.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers