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Monday, 05/19/2014 3:21:10 AM

Monday, May 19, 2014 3:21:10 AM

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FULL SCOOP WHY WWE IS A STRONG BUY

Reason why WWE will bounce back on Monday and will be a strong buy for LONGS.

Before anything I would like to address the reason why the stock dropped 42.2% respectively. On May 16 WWE announced that their broadcasting fees with major cables would not be 2x-3x times the current amount of money investors were expecting. However WWE did get a 25% increase from $68m ish to $93m ish. 25% vs 200% their is a big difference so you see the large let down. Another reason why that may add to the reason for the drop is the move from their $125m a year Pay Per View business broadcasting their 2 main events Wrestlemania and Summer Slam on cable to a subscription base mold charging customers a monthly fee to access all of WWE past and present content. Keep in mind this move was in Feb 27 2014. Investors are saying the WWE would lose $42-52m this year from this move. However to break even WWE would need 1.2m subscription users by the end of 2015 Jan 15th to be exact.

Now the facts why WWE will regain it's losses and bounce to newer highs for the long halt.

After reviewing many forums and taking both sides and ignoring both pumpers and bashers without facts.

The WWE announced 640,000 ish newly subscribers to their $9.99 a month plan that allows the user to view all WWE content 24/7. Keep in mind WWE needs 1.2m ish users to break even the Pay Per View model WWE has been using. WWE also announced that this offer is only to the USA. Meaning WWE still has both the subscription base model in the USA and the PAY PER VIEW in other countries. So the best of both worlds.

Now let's break down the numbers.
PPV yields $120-$145m a year in revenue. This is revenue not 100% profit. The undisclosed amount of how much cable companies take is up for interpretation. What we do know is PPV will take a large cut of that revenue. Let's say 65/35 WWE keeps 65% or $75m ish. Investors are saying WWE needs 1.2m subs that are paying $9.99 a month to break even. Now let's look into the subscription base model. So far what we know is 640k subs has signed up and needs 1.2m subs to break even. However this new model has been only introduced in the USA. Which is only 23% ish of WWE 670m and growing viewers world wide. Translation WWE has not open this model to the rest of the world and other countries are forced to use the PPV to get access to WWE's main events. Now let's break it down even more. In less then 2months in April WWE released a PR announcing the signing of 640k subs. That's only in 2months. Now let's use Moore's law of doubling negative. In the next 2 months half of the 640k subs will add which would be 320k subs then repeat. The next 2 months 160k subs will add then repeat. The next 2 months 80k subs will sign up. It's now 8months into the new service and a total of ironically 1.2m subs
(640k subs mar-apr) + (340k may-jun) + (160k Jul-aug) + (80k sep-oct) + (40k nov-dec) GRAND TOTAL 1.204m subs. Please keep in mind this service is only for the USA. The rest of the world has to use PPV.

Now what does this all translate? WWE has not only broken even on PPV revenue but also gain from it's subscription base model in the USA while profiting with it's PPV in other countries. So investors misunderstood some key facts about WWE using both subscription base model + PAY PER VIEW. Now let's go deeper... WWE is focusing it's company to build a more loyal base customer while adding new ones by allow users who are subscribed to the monthly fee to watch all content 24/7. What does this translate? More customers in the long halt meaning more customers going to buy more products offered by the WWE.

Not a lot of investors know that WWE has a lot of revenue coming from different places. Other than broadcasting fees. WWE has teamed up with Mattel to make their toys, made a movie production company to produce film. It's latest movie Oculus has yield $32.55m so far with one of the lowest budgets of under $4.5m. A ratio of 13.337% cost compared to Captain America 2 yielding $700 with a $170m budget 24.78% cost. Not a bad ratio for a horror film to be shown in the summer with fierce competition from Capt. America 2 that opening weekend.

Now let's look into why I feel the stock was over sold on Fridays large drop. At closing price $11.37 ish. For most of the year the stock has traded above $14.65 from 2013may till now. I personally feel investors were too greedy and set the expectations too high for WWE to even reach. At $14.35 with 2013 earnings is already screaming for this stock to be brought up anything under that. With the 25% increase the stock fair value should be around $16.50 at it's lowest. WWE move to a subscription base model only in the USA does not support a 40% drop a fair percentage would be around 12% drop noting that only 23.6% respectively of it's growing 670m. Keep in mind WWE still charges PPV to it's remaining 75% of it's yearly 670m and counting viewers. Investors that dumped on Friday only accounted the $52 million loss regarding its new move to a subscription-based model and didn't account for its revenue that it would be charging for pay-per-view in it's other foreign countries outside the US. WWE does not have to break even on it's new subscription base model in the United States it's revenue outside of the US alone will not only break even but will surpass the $120m yearly revenue it's gains from PPV. It's interesting that most analysts does not bring up this case where WWE are profiting off both models not just one but both.

Closing statement summary + what I predict on Mondays conference call at 11am Eastern time.

I would like to address this message to Longs that were trading the stock before the large plummets that happen on Friday. If you're still holding there's no point of selling now. 70% of its trading volume happened in the first two hours of training. A lot of consolidation of shares were exchanged to larger hedge funds and institutions robbing those that fell into the panic selling of fear.

4.2 dividend + 25% increase in broadcasting fees plus beating expectations of its yearly pay-per-view plus it's new model of its subscription base in the United States alone will not only increase WWE's revenue yearly but will allow it's ecosystem of their customers to become more loyal. That translate to more purchases of their merchandise outside of it's broadcasting fee, more content distribution that will allow its users to stay up to date with its current shows 24/7 keeping it's loyal customers satisfied. With more satisfied customers more customers are willing to purchase and continue to spend their hard earned money on other WWE key services and products. WWE is in the business of long term customers now not short term.

What I predict that will happen on Mondays trading will be simple there will be a spike on Monday based off of large expectations on Monday's conference call at 11am Eastern time. Knowing Vince McMahon he will not allow investors to tarnish his stock. He and the CFO and other executives will probably announce how many more subscribers they have signed up and give estimates of how much subscribers they will sign before the end of the year. In addition they will most likely announce the opening of this subscription-based model into other foreign countries outside of the US increasing its subscription-based model not only breaking its yearly $120 million revenue that pay-per-view generates yearly but resulting in a higher more stable revenue stream of revenue that WWE will gain. In addition with all of its newly subscriptions to its users there will be a spike in the WWE's others services and products to be purchased such as their toys, clothing, sporting-goods and movies just to name a few.

After the large drop on Friday reading three or more large investment firms has announced that they have taken a new stake of the company and wants a revamped and it's management. This could be read as bad news but reading between the lines this is actually good news if you compare this statement with the company HP which had a 23% price drop last two or three years ago. Once this announcement of a request from other investment institutions to revamp its business model and management the stock price not only retain its losses but double within the next nine months. With more revenue coming from more sources and a new revamped of management the stock has to go higher there's no more going down. Shorts that accumulated on Friday's closing will be forced to cover on Monday due to the demand of shares being bought before it's conference call this happened to HP and will happen with WWE. I personally predict that the stock will rise above $12.50 before the conference call once a conference call has starts I predict that the stock by the end the day will close around $15.25 ish as the remaining shorts gets squeeze out of their positions. I predict that the stock will rebound back up to the high $20s and breaking it's yearly highs and surpassing doubts bring the stock around $64 a share by the end of 2016.

PS: hold strong and let the facts speak for it's self and don't sell too soon. The conference call will always have good news so trade on Good news.
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