World Wrestling pummeled four out of five rounds this week
Wall Street made World Wrestling Entertainment a punching bag four out of five trading sessions this week.
After plunging 22% Monday and Tuesday, World Wrestling rebounded 2.4% to $22.75 Wednesday before two more days of losses. By Friday's end, shares were down another 4% to $20.30.
Behind World Wrestling's massive fall?
Fresh off last weekend's Wrestlemania 30, World Wide Wrestling was hit hard after reporting 667,000 signups for WWE Network, the $9.99 monthly subscription service launched Feb. 24. WWE's year-end goal is 1 million subscribers, but some stockholders found the early subscriber count underwhelming.
Then, investment manager Lemelson Capita weighed in, saying World Wrestling Entertainment shares remain top heavy.
"WWE is facing multiple challenging factors, including underwhelming subscription figures for their WWE network in addition to a multi-year negative earnings trend, suggesting that the firms' intrinsic value is materially lower than the current stock price," said Lemelson Capital chief investment officer Emmanuel Lemelson.
WWE had been on a roll for much of the past year, surging from $8.56 to $31.98 by last month on prospects for WWE Network, the Internet streaming service which augments ending distribution agreements with several broadcast and cable TV networks. (WWE also has a new deal with Britain's BSKB network).
The faux sport, which turned Hulk Hogan, The Rock, John Cena and even WWE CEO Vince McMahon into very real cross-over film and entertainment stars, continues to have a wide following. According to company filings, 256 live North American events in 2013 attracted more than 1.5 million fans, another 382,000 at 56 events overseas.
WWE conceded in its annual statement that it lacks expertise in its subscription model and "could experience significant setbacks" monetizing the service. The company posted a fourth-quarter operating loss of $12.2 million, compared to income of $2.6 million in the year-ago quarter, due mostly to investments in WWE Network.
Among Wall Street stock analysts, at least two have sell ratings on WWE. And Lemelson says despite this week's slide, the stock is fairly valued at no more than $11.88 a share.
Still, others remain on the buy side of the ring, seeing promise because WWE Network offers 24/7 content and includes offerings such as Wrestlemania and other marquis TV events that previously cost fans up to $59.95.
"The subscription numbers for the new WWE network are very solid and healthy,'' says Kim Opiatowski, an analyst for The Vertical Group. "The stock may have gotten a little ahead of itself, and a lot of momentum names have been fading. And people may have also taken money off the table."
Opiatowski, who has had a buy rating on the stock since mid-January, is maintaining a $33 price target.
Opiatowski, however, warns that 2014 could be as volatile as a hyped up ring battle.
"Results for 2014 could vary dramatically from our estimates depending upon the company's success and timing in signing up subscribers and resulting cannibalization of its pay per view base,'' she says. "Another area of concern is the cost of creating original content to air on the 24/7 WWE network and the balance between content costs and the addition of new subscribers."
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