Please ensure Javascript is enabled for purposes of website accessibility

2 Opportunities WWE Pessimists Needs to Know About

By Daniel B. Kline - Dec 9, 2017 at 10:40AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The company has put a solid plan in place for its long-term future.

While World Wrestling Entertainment (WWE -0.36%) had a strong third quarter that sent its stock price higher, the company still has its share of doubters. That makes sense, because WWE's top source of revenue remains television, and that market has been suffering an increase in cord cutting.

Shareholders and analysts worried about the company's next television deal in the United States have legitimate reasons to be concerned. Ratings have slipped, and as the cable universe shrinks, it's possible that there will not be heavy interest in the product from cable channels.

It's possible, but it's not likely -- because while ratings are down, they remain strong, and live sports (or in this case sports-like) events remain attractive because viewers watch them when they air. In addition to offering strong ratings, WWE also fills five hours of prime time with new programming 52 weeks a year.

A few years from now the cable market may have changed enough that WWE will struggle to match its current value, but that day is not here yet. And, the company has a lot of upside which pessimists should at least consider.

Two wrestlers in a ring

WWE has been adding performers from key markets around the world. Image source: Getty Images.

It's a global product

Through nine months of 2017, WWE made about 75% of its revenue in the United States. As you can see in the chart below, the money the company brought in from its three non-U.S. market groups actually stayed pretty flat year-over-year.

  3 Months Ended
Sept. 30,
9 Months Ended
Sept. 30
  2017 2016 2017 2016
Net Revenues by Region:        
North America  $140.70 118.5  $446.30 $398.3
Europe/Middle East/Africa (EMEA)  $24.60 24.7  $87.80 $88.5
Asia Pacific (APAC)  $18.80 18.5  $47.30 $41.3
Latin America  $2.30 2.5  $8.00 $6.2

Data source: WWE

Going forward, however, it's likely that global revenues will increase. WWE has smartly been cultivating performers from potential top markets. It has already hired a number of wrestlers who made their names in Japan and Mexico, and it has been working on training wrestlers from China. In addition, the company used a wrestler with Indian heritage as one of its champions this year, growing interest (though not revenue) in that market.

WWE has television deals around the world, and its streaming network is available in most countries. Turning visibility into revenue remains a problem, but in the wrestling business having stars with local ties has traditionally been a big draw.

It will take time for the company to train those performers, and not every star hired from another company who made his or her name outside the U.S. will click with WWE fans. Despite that, the company has clearly been playing the long game when it comes to global growth, and eventually those efforts will pay off.

The network is ahead of its time

WWE' streaming network has replaced the revenue the company gave up in its pay-per-view (PPV) business by including those shows in the service, but it hasn't quite met expectations. Network numbers, however, should improve as cord cutting increases in the U.S. and the rest of the world becomes more comfortable with streaming services.

In its home market, cord cutting has been steadily increasing, but it's still a small percentage of the market. That means that many potential WWE Network customers are still paying for cable, giving them less budget and bandwidth for streaming networks.

Going forward that should change. For example, if a WWE fan drops a $100 cable subscription, he or she could get access to the company's live television with a $25 a month DISH Sling subscription. Add in $9.99 a month for the WWE Network and you could add Netflix and Hulu and still be spending about half what your cable bill cost before.

That shift should help U.S. adoption of the network, while the rest of the world simply needs time. Japan, for example, which has been a strong market for pro wrestling, has largely not embraced streaming services. As that changes (and it may not change everywhere), WWE Network's subscriber numbers should improve.

A cautiously bright future

WWE has actually been ahead of the game when it comes to preparing for the changing television landscape. That has already paid off with the network -- while numbers may be below the company's originally stated goals, a strong foundation has been laid.

On top of that, as the company's performers begin to reflect the world better, its audience should grow outside the U.S. That increases its ability to tour, sell merchandise, and even create market-specific programs.

The company is not all the way there yet, but WWE has built a framework for long-term success. Those efforts may not pay off quickly, but ultimately they will pay off.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

World Wrestling Entertainment, Inc. Stock Quote
World Wrestling Entertainment, Inc.
$62.27 (-0.36%) $0.23
Netflix, Inc. Stock Quote
Netflix, Inc.
$175.19 (0.18%) $0.32
DISH Network Corporation Stock Quote
DISH Network Corporation
$18.21 (1.59%) $0.28

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 07/01/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.