After dropping more than 60% in early 2014, World Wrestling Entertainment (NYSE:WWE) stock has been recovering steadily, up 35% year to date. It plans to launch it streaming service in Japan in the coming weeks and has been enjoying big subscriber numbers.
In this clip, Sean O'Reilly and Vincent Shen talk about the company's impressive growth during the past year in subscriptions, ticket sales, and social media presence, how much subscribers are paying and what content they have access to, and how the company is planning to grow subscription numbers in upcoming years.
A full transcript follows the video.
This podcast was recorded on Dec. 15, 2015.
Sean O'Reilly: You're taking me back to middle school with this one. We're talking WWE, World Wrestling Entertainment.
Vincent Shen: Yes. I just wanted to give a quick update here, because I think this company has gone through a bit of an upheaval, implementing major changes to their business strategy.
O'Reilly: It's working.
Shen: It's working for them now, yeah. Their prospects are getting a lot better after their stock tanked, absolutely tanked last year. So just a quick update. The company recently announced that they would be launching their WWE Network streaming service in January in Japan.
The price will be $9.99 per month. They'll still be offering the first month of service free, no strings attached, you can cancel any time, no long-term commitments. So this is just like what they're currently offering in the North American market, for example.
And this is a really important part of the company's long-term strategy, because the network has increased to about 1.3 million subscribers as of the third quarter. So that's up a very impressive 80%, about from the same period last year.
O'Reilly: $10 a month, that's a chunk of change.
Shen: Exactly. They offer that first month free, but paying subscribers are also still up an impressive 62% year over year. So through the first nine months of 2015, though, looking at Japan in terms of international markets, those first nine months of 2015, international revenue is up 43%, $119 million. So now it makes up about a quarter of the top line. And this, I feel, is just the beginning. So for full year 2014, the Asia Pacific region was already the second-largest market outside of North America.
O'Reilly: I did a little digging -- they've been doing stuff in Japan since the mid '90s. So they're there.
Shen: I'm not sure if it has to do with the culture. Obviously, sumo wrestling is popular in that market, so maybe this is part of the reason. But overall, wrestling is very popular in Japan. So this is a strong market for them.
And this is, in addition, keep in mind, to the fact that they launched on the Indian subcontinent recently, and they'll be launching in Germany, targeting China, Thailand, the Philippines. So again, that Asia market being just slightly the largest, I have a feeling it's going to be growing as a piece of their overall top line.
O'Reilly: From what I read, apparently they have, at the very least, some kind of online presence in about 50 countries. I was consistently surprised as I read more and more about what's going on with wrestling right now. They became profitable again in the last three quarters. Ticket sales to live events were up 8% or 9% year over year. This is not a dying company by any stretch of the imagination.
Shen: Yeah. And a big question is -- originally, a lot of their bread and butter came from the big pay-per-view events. But they rolled out the WWE Network, which gives you...
O'Reilly: Do you know what one of those cost, by the way? Like $20, right?
Shen: The pay-per-view ones? They could be $40 to $50.
O'Reilly: Wow, OK.
Shen: So they switch the model so you're paying $10 a month now, but instead, you get access to every pay-per-view event. You get access to, I think, the archival footage that they have, at least for the Japan launch. It's like 4,000 hours of content.
O'Reilly: Correct me if I'm wrong, but you get free access to that when you pay the $10 a month for the subscription?
Shen: Yeah. It's part of what you get.
O'Reilly: You get literally every WWE match in history as part of this subscription.
Shen: Yeah. Tons and tons of archived content. In the beginning, there were a lot of concerns about whether offering this is going to really hurt their pay-per-view income, or if the company is going to be able to make this work, but they've managed to get to that point where, OK, now they're at the profitability level with the WWE Network that they were at previously. It's just a matter of expanding their geographic presence into new markets. This should be a nice growth driver for them, in terms of a long-term strategy.
For the stock itself, it peaked in March of 2014 at about $31 per share, plummeted to $11 per share just two months later in May, and since then, the stock has been making a slow recovery. It's up 35% year to date. In terms of valuation, though, it trades pretty rich, 35 times forward earnings.
O'Reilly: Yeah, that's not cheap. I remember well that drop, $31 to $11, and the reason was, at the time, they were worried about cannibalization. That was when they were talking about the rollout, and they were like, "Wait, you're giving up on pay-per-view and shifting to this Netflix-y type model? What?"
Shen: There were a lot of fears about the subscriber number is not coming in strong enough at the time. But since then, they've been able to reverse that, and the stock's made a nice recovery. The valuation's a little high based on the growth that they've projected, but overall, I think this is an interesting company to look at, that was able to, so far I'd say, successfully execute on a major change to their strategy.
O'Reilly: And just to wow our listeners a bit further, I did pull up some social media stats from their latest quarterly filing. This is really cool. WWE has the most-viewed channel on YouTube in August, ranking above other popular channels such as BuzzFeed and Taylor Swift. WWE exceeded 660 million social-media engagements to date in 2015, and continue to rank sixth on Sprinklr's Social Business Index, ahead of the MBA, NFL, and other media properties.
Shen: Wow. There you go. I loved it as a kid, and I still remember a lot of the big names from back then.
O'Reilly: Another thing -- Stone Cold Steve Austin has a podcast.
Shen: Now I know what I'm going to be listening to on the train home today.
Sean O'Reilly has no position in any stocks mentioned. Vincent Shen has no position in any stocks mentioned. The Motley Fool owns shares of and recommends NFLX. 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.