📃 Download PDF financial model.
Financial estimates
$76 is my first published twelve-month price target on WWE shares. The target is based on a 12x multiple of forward-looking adjusted OIBDA.
I estimate the full year of 2022 with an adjusted OIBDA of $372 million, which is near the bottom end of the range of WWE’s most recent guidance of $370 million to $385 million.
I struggled with my model to get to the $70 million to $80 million in adjusted OIBDA that WWE guides for Q3. My estimate is much lower than guidance, $58 million. That’s despite expecting international ticket sales to contribute about $7.2 million in revenue in the quarter from Clash at the Castle, not including subsidies management alluded to in the previous earnings call, and strong venue merchandise sales from the event.
Q3 2022 estimates
Revenue: $296.5 million
Adjusted OIBDA: $57.8 million
Net income: $26.4 million
EPS (diluted): $0.30
Full-year 2022 estimates
Revenue: $1.305 billion
Adjusted OIBDA: $371.9 million
Net income: $208.6 million
EPS (diluted): $2.38
U.S. media rights value
I expect U.S. live rights for Raw and Smackdown to be finalized sometime between Q2 and Q4 2023, with new deals going into effect in Q4 2024. Deeply-invested NBCUniversal seems likely to hold on to Raw rights. I don’t expect WWE to be acquired in the near future but wouldn’t rule out NBCU buying the company outright rather than renewing. The hold up for NBCU, I believe, is around the Comcast subsidiary’s reluctance to own and manage a wrestling company, due to wrestling’s lack of prestige and its uniqueness as an industry.
Fox, which currently holds Smackdown rights, is less certain to renew. Additional strong potential bidders aren’t obvious. Amazon may make a strong financial bid but the reach of Prime Video is unproven. Other sports properties, including Big Ten have passed on superior financial offers in favor of the reach provided by traditional television networks. Moreover, I don’t view Apple as a serious bidder for WWE rights, as the company has hyped. Apple TV+ and WWE don’t seem like a brand fit.
WWE may be delaying the finalization of a new deal for next-day rights held by Hulu so that those may be offered together with live rights. The current deal I believe expires at the end of Q4 2022. NBCU (Peacock), Amazon (Prime Video), and Netflix are plausible buyers.
I estimate a base case of 1.5x over current Raw and Smackdown deals worth a total of $470 million in average annual value. An increase seems likely as other live sports, including Big Ten, Formula 1, Premier League, and the NHL, have been dealt substantial increases in their recently-completed U.S. deals. WWE could overperform the base case if a stronger than expected bidding process occurs or rights are dealt in additional fragments in a continuation of the company’s strategy in 2018 to sell Raw and Smackdown to separate buyers. The company could underperform the base case if bidding is weaker than expected.
TV ratings for Raw and Smackdown remain highly-ranked among programming generally. Smackdown is often the most-watched program with adults aged 18 to 49 on Friday. Raw is often the most-watched on cable. Ratings show a secular increase since the exit of Vince McMahon, who previously led creative. Improved TV ratings, if they are sustained, should only help WWE’s leverage in negotiating upcoming media rights deals.
New creative leadership
Paul Levesque took over creative in late July after McMahon’s resignation as long-time CEO and chairman. The removal of McMahon from creative and as the main subject of scandal, I view positively. McMahon’s creative leadership I believe had an adverse effect on the company, evident in consecutive years of declining consumer sales from 2017 to 2020. His exit may also relieve hesitance from business partners, including media rights bidders and advertisers, who may have been reluctant to be associated with WWE because of allegations of misconduct against him.
Ticket sales as well as TV ratings have responded favorably since Levesque took over McMahon’s former role as head of creative. My current estimate assumes moderate increases in ticket sales going forward. I expect impressive comparisons in event attendance in Q3, despite last year’s Q3 benefiting from pent-up demand in the company’s return to touring. I’m cautious but optimistic on merchandise sales, which we’ll get insight into in the company’s next earnings report.
I view Levesque as the best-suited candidate for the head of creative position. His installment will also sure up WWE’s vulnerability from its nearest competitor, AEW, as those companies compete for wrestling fans and talent who were disenfranchised by McMahon’s leadership. I view WWE’s fan popularity potential as significantly higher and AEW’s potential significantly lower with McMahon out of the way and better leadership in his place. Under Levesque, talent recruitment will likely sensibly revert to pursuing wrestlers with experience in addition to (rather than almost solely) non-wrestler athletes.
I believe creative direction and talent development are factors affecting WWE’s business that are overemphasized by much of the wrestling media and underestimated or not understood by much of the financial community.
Future international PLEs
The “Clash at the Castle” premium live event on September 3 in Cardiff, UK, drew an announced attendance of 62,296. I believe that number includes a significant percentage of free tickets but is reflective of the number of spectators in attendance. Paid attendance I estimate at just under 50,000 with an average ticket price similar to recent Wrestlemania events. The event demonstrates the company could do future stadium-scale events in Europe or Australia on an annual basis to the benefit of its live events segment, with incremental downstream value for other areas.
Disclosures/disclaimer: As a policy, I do not currently hold positions and have no plans to initiate any positions in WWE (NYSE:WWE). I currently hold shares in other companies mentioned in this article: Amazon (NASDAQ:AMZN), Netflix (NASDAQ:NFLX), and Apple (NASDAQ:AAPL).
This article does not constitute financial advice and should not be construed as investment research.
Brandon Thurston
brandon@wrestlenomics.com
