WWE is at least slightly undervalued

I’m going to wade into estimating WWE’s adjusted OIBDA profit metric going forward, which I’m learning — non-GAAP as it is — is better for determining what the stock price should be. I’ve previously been considering EBITDA as the profit metric to determine the stock price.

What’s this “multiple” you’re talking about?

Looking at historical stock prices and WWE’s actual reporting on its adjusted OIBDA in prior quarters, WWE’s market capitalization (the sum value of all shares) is normally about 12x the forward-looking four quarters of adjusted OIBDA.

Still (understandably) confused? Let’s take the prior four quarters of adjusted OIBDA.

  • Q1 2021: $83.9M
  • Q2 2021: $68.1M
  • Q3 2021: $77.9M
  • Q4 2021: $97.2M

Add those dollar values up and you get WWE’s record-setting 2021 annual adjusted OIBDA of $327.1 million.

Multiply $327.1 million by 12 and you get $3.93 billion, a number close to WWE’s market cap, as determined by the stock price. 

Market cap = stock price × basic shares (about 76 million in WWE’s case).

WWE’s stock price on the last day of 2021 closed at $49.34.

$49.34 × 76,324,000 = $3,765,826,160.

Round that and you get $3.77 billion, which is roughly what you’d have found the market cap valued at on December 31, 2021, on sites like Google Finance and Yahoo! Finance.

Notice $3.77 billion is lower than the $3.93 billion I mentioned above, based on WWE’s actual adjusted OIBDA reporting. In fact, it’s low by 4%.

There are many hard-to-predict factors that go into determining WWE’s stock price, but the math above is probably among the factors causing WWE’s stock price to increase of late since last Thursday’s earnings report.

Disclosure/disclaimer: This article expresses my personal opinions only. I do not, nor have I ever, held any stock positions in WWE (NYSE: WWE). I have no plans to initiate any such positions within the next 72 hours. I am not being compensated for this or any of my other Wrestlenomics-related work except through audience-driven revenue, including Patreon subscriptions and programmatic advertising.

But what should WWE’s stock be priced at now?

I’m not a certified stock analyst or financial advisor and this article is not financial advice, nor should it be construed as such.

That said, I can’t resist flexing that I’ve been more accurate than the real stock analysts in the last three quarters at predicting WWE’s earnings per share ratio.

Updating my estimates following the Q4 earnings report, I now anticipate adjusted OIBDA for the next four quarters (Q1 2022 through Q4 2022) totaling $364.9 million.

12x seems like a reasonable multiple in my judgment based on the behavior of the stock in the last five years. By the end of Q3 2018 the stock traded at a ridiculous 55x multiple. This is when shares reached their all-time high of just over $100 in the midst of what in hindsight was clearly unfounded optimism, just after the new U.S. TV deal was struck and investors were apparently hyped about the idea of international TV rights deals that were coming up and the notion that Smackdown moving to high-reach Fox would have strong downstream benefits to the business.

Since, a multiple of 10x to 12x has been the norm. I’m favorable to the idea that the stock is somewhat underpriced. I tend to be more confident than what I perceive are the general assumptions about WWE’s U.S. media rights outlook. It’s notable WWE trades at about half the multiple of some of its peers like Endeavor and Liberty Media but we won’t explore that issue right now. We’ll proceed with a 12x multiple assumption.

My forward-looking adjusted OIBDA estimate of $364.9 million × 12 = $4.38 billion.

Which means, assuming a 12x multiple, that my adjusted OIBDA estimate implies the fair value of WWE is $4.38 billion.

How does that compare with how the company is being valued on the stock market currently?

Shares closed yesterday at $55.33, meaning WWE’s market cap was priced at $4.14 billion.

$4.38 billion is 6% higher than the $4.14 billion the market values the company at.

So in other words, yes, it seems to me WWE is slightly undervalued — or maybe more than slightly undervalued if you can argue the 12x multiple is too low.

Brandon Thurston has written about wrestling business since 2015. He’s also worked as an independent wrestler and trainer.

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