WWE saw a jump in their stock prices on Thursday, Aug. 30. This after Roth Capital upgraded the listing from "Neutral" to "Buy" and raised the price target from $10.00 to $12.00. The stock (NYSE: WWE) opened at $8.61 on Thursday after closing at $8.34 the day before. It has continued to climb to $8.88 as of the end of the week. These numbers are sure to please many of the pencil pushers in Stamford, CT. While it's still a ways off from the $16.00-$18.00 range that WWE was trading at in 2010, it's always nice to see the stock ticker turn green.
However, when we start to dig into the reasoning behind the upgrade, things might not look quite so bright. Richard Ingrassia of Roth Capital Partners specifically cites:
- "Pay-Per-View (PPV) buyrates for non-WrestleMania events increased 37 percent in the second quarter, the first meaningful improvement in... four years."
- WWE has an increased presence on television -- including Main Event, Saturday Morning Slam, and an extended third hour of Raw.
- WWE's use of social media to drive up revenues.
- WWE Studios moving away from "money-losing self-produced films" and focusing more on partnerships and distribution deals.
- The eventual launch of the WWE Network, which Ingrassia estimates could add $68 million to their 2013 revenue.
This sounds reasonable, but would you invest heavily based on this list, knowing what you know? While the extent of my economics knowledge consists of "buy low, sell high," I'm not particularly sold on this rationale. A few off-the-cuff reasons why after the jump.
We'll go point-by-point, to keep things organized:
- Increase in pay-per-view (PPV) buyrates: Is it a good thing that buyrates are on the way up? Yes, absolutely. But WWE doesn't produce a consistent product, it changes week in and week out. Those in charge haven't shown enough consistency in the storytelling to warrant fans getting their hopes up, let alone anyone investing real money into the company based on this pitch.
- Increased hours of television: This is a fair point, because the networks already write the checks. However, shows like Saturday Morning Slam and Main Event have yet to find a home overseas; once there's room to be obtained on foreign television, WWE will need to be right there to take advantage. But how much more can WWE squeeze out of the television side of pro wrestling? The ratings for Raw and SmackDown have pretty much held steady and I don't believe The CW or Ion Television are really breaking the bank. Undoubtedly, television has been good for business, but there may not be much growth left in it.
- Social media: I cannot believe this is even here. There's plenty of debate to be had about how WWE can utilize social media to further their product. But right now there is not much definitive proof to be found showing them actually making any money off of it. After all, the people following John Cena on Twitter are already members of CeNation; the people watching Touts of Chris Jericho are already "Jerichoholics". WWE is making some money from their WWE Fan Nation YouTube Channel for their original content but it's merely a drop in the bucket, at this point. One day companies will be able to monetize social media cost-effectively -- if it's to be done, WWE will undoubtedly be the first to prove it possible.
- WWE Studios: WWE isn't losing millions of dollars but this is actually not such a good thing. This is something a company is supposed to do, invest in new ventures at the risk of loss. You don't get to show up to class, claim to the teacher you did your homework, not actually turn anything in and still expect an "A". Let me know when WWE Studios starts making blockbusters, or at least decent movies, and then we'll talk.
- WWE Network: This is just insane. Ingrassia is estimating a $68 million in revenue for next year based on nothing more than a concept. It doesn't exist and it may never exist. At this point, the only thing the WWE Network has done is upset its shareholders. How an intelligent man can look at a concept that has been pushed back repeatedly and pull any number, let alone such an enormous one -- millions of dollas, millions and millions of dollas -- out of thin air, even as a hopeful estimate, is beyond me.
I guess that's why I don't work at Roth Capitol.
Does the fact that WWE stock goes up a couple of dimes really affect the average fan? Not in the short turn. But how the stock moves does affect the direction the company will go.
If people are really buying into it primarily because of the use of social media, then you can be sure we're going to see a lot more Tweets and Touts. If the WWE Network is expected to be a huge money maker, than WWE is going to throw more and more cash in that direction. The pro wrestling aspect of the product could very well suffer with more distractions and workers potentially getting paid less.
This is clearly important to the people in charge who are making the big money decisions. It should be important to us, as well. What do you think, Cagesiders?