WWE Shares Down -30% in October, Market Sell-Off, Q3 Earnings and Crown Jewel to Blame


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WWE Shares Down -30% in October, Market Sell-Off, Q3 Earnings and Crown Jewel to Blame

The WWE share price has declined -30% during the month of October, from $94.22 on October 1st to a closing price of $66.16 on October 29th; the recent market sell-off (S&P 500 -9.5% MTD), uneven 3rd quarter earnings results (revenue +1% YoY, operating income -47% YoY, EPS +32% YoY) and the company’s decision to hold “Crown Jewel” in Saudi Arabia on November 2nd (in the wake of the Khashoggi murder), have all negatively impacted WWE’s market cap. Co-President George Barrios said that despite the short-term headwinds, the company remains on “a path to achieve record revenue, record adjusted OIBDA ($160-$170 million) and record subscribers (to WWE Network) for the full year 2018.” Even after October’s steep regression, shares remain +110% YTD.

Howie Long-Short: Coming off a 2nd quarter where the company grew revenue +31% YoY, Q3 ‘18 disappointed from a revenue standpoint ($188.4 million); declining ticket sales (-16% YoY) for live events (in terms of price and volume sold) and a drop in consumer merchandise sales (-18% YoY) have been identified as reasons for the shortfall. While WWE did post marginal revenue growth in the 3rd quarter, operating income fell -47% YoY (to $18.1 million); accrued management bonuses/incentives tied to 2018 successes explain the YoY drop. A tax benefit gave Q3 earnings a lift.

A couple weeks back, we wrote that despite reports to the contrary, Crown Jewel remained on the WWE’s event calendar and was expected to go off as planned. WWE Chief Brand Officer Stephanie McMahon has since confirmed that will be the case saying the company will “uphold its contractual obligations to the General Sports Authority and stage the event.” While easy to pile on WWE for forging ahead with Crown Jewel, it’s important to remember that they’re a publicly traded company with shareholders to answer to. The PPV quality show is the company’s 2nd in a 10-year, $450 million pact with the Kingdom and a decision to cancel the event would have caused “material adverse impact on ’18 adjusted OIBDA guidance” (and possibly beyond). Fans have been critical of the “business decision” though and WWE shares are down -12.5% since the announcement was made.

On August 28th, the WSJ made the case that WWE shares (priced at $83.75 at time) still had room to run; shares were trading at “around 27 times projected 2020 earnings of $3.08 a share, 25% cheaper than they have been historically on projected earnings two years in the future.” If shares were intrinsically undervalued then, they really are now; WWE is down -21% since.

Fan Marino: While we’re discussing WWE, last Monday night on RAW, Universal Champion Roman Reigns (Joe Anoa’i) announced that he’s relinquishing his title and taking a leave of absence from the company to “focus on his health” as he battles Leukemia. Reigns (33) stepped out of character to address the crowd, sadly informing them the cancer had returned after 11 years of being in remission. Amongst the WWE’s biggest stars, the “Big Dog” made it a point to say that he was not retiring (he plans to wrestle again), but “taking his battle with leukemia public in an effort to raise awareness and funds for research in order to advance cures for the disease.” Here’s to hoping he gets well, fast.

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