The price of WWE (WWE) stock jumped this week after longtime chairman and CEO Vince McMahon resigned from the professional wrestling company amid allegations of improper payouts for alleged sexual misconduct.
Unlike the rest of the stock market, WWE stock is booming in 2022, with its shares up about 40% year to date. As the company enters uncharted territory, here is one reason for skepticism and another for optimism that its stock can reach new highs.
Reason for skepticism: New leadership, but not really
Vince McMahon served as chairman and CEO of WWE for 40 years, revolutionizing the professional wrestling industry by transforming what was once regionalized promotions into a global enterprise worth over $5 billion today. Recently, he came under fire for allegations of sexual misconduct, and McMahon finally resigned when the company discovered $14.6 million worth of unrecorded payouts.
As a result, WWE announced it would revise its previously issued financial statements during the past few years and the first quarter of 2022. Additionally, the company admits it has received regulatory and/or investigative inquiries because of Vince McMahon's alleged improper conduct.
Stephanie McMahon, Vince's daughter and former professional wrestler, has taken over as chairwoman and co-CEO. Stephanie and her husband, Paul "Triple H" Levesque -- who will head WWE Creative -- will each bring three decades' worth of WWE experience to their new positions.
Nick Khan, president and former head of the television department at CAA, will be serving as the other co-CEO. Khan notably negotiated many of WWE's current television licensing deals that serve as the professional wrestling company's primary revenue source.
Despite the market's apparent enthusiasm over the leadership change, Vince McMahon still will have a say in the company's future. That's because Vince owns 38.6% of all outstanding shares and holds 92.2% of WWE Class B common stock, entitling him to 10 votes per share on all matters, where each Class A common stock is entitled to one vote.
The company's annual report notes, "Through the beneficial ownership of a substantial majority of our Class B common stock, Mr. McMahon can effectively exercise control over our affairs."
It remains unclear how WWE will perform without its longtime CEO Vince McMahon, especially since his voting power casts a large shadow over the company. For investors, watch for news regarding lawsuits or potential investigations to see whether the company will be able to move on to its next chapter or be marred by its past.
Reason for optimism: The business is bigger than ever
Coinciding with the news of Vince McMahon's resignation, WWE released its preliminary Q2 2022 results, showing its adjusted OIBDA -- the company's self-identified most important metric for the business's performance -- was $92 million, up 35% year over year. WWE defines Adjusted OIBDA as "operating income excluding depreciation and amortization, stock-based compensation expense, certain impairment charges and other nonrecurring material items that otherwise would impact the comparability of results between periods."
Additionally, for the first six months of 2022, WWE posted an adjusted OIBDA of about $204 million, up 34% compared to $152 million for the first six months of 2021.
The business is booming, primarily thanks to the company's television licensing deals. WWE generated roughly $790 million annually just between licensing its live airings of tentpole properties NXT, Raw, Smackdown, and the WWE Network. For context, the company produced $1.09 billion in total revenue for 2021, meaning those licensing deals accounted for about 72% of its annual revenue.
A licensing company creates a relatively safe revenue floor, and WWE's current deals have a yearly contractual escalation of rights fees, guaranteeing revenue growth each year. Better yet, its live television and streaming revenues have increased with each new contract, and its Raw and Smackdown U.S. television rights each expire in 2024.
Is WWE a buy?
WWE has done a masterful job of turning itself into a licensing champion, and as a result, it has handsomely rewarded its shareholders, with its stock up more than 200% over the past five years. It also pays a small dividend.
The wrestling company will have some challenges in the short term as it deals with the fallout from the Vince McMahon scandal. But with wrestling experts Stephanie McMahon and Triple H as well as proven television rights negotiator Nick Khan leading the company into a new age, expect the company to retain its title belt for years to come.
