Thursday, July 17, 2014

What’s going on today with $WWE’s stock price?

In two weeks the WWE will be revealing their 2nd Quarter results. Eager analysts (such as myself) are most interested in the updated number for WWE Network subscriptions. (The recent “no credit-card required, free trial!” and hard-selling on Raw suggest that the WWE Network is still ailing – I suggested some medicine here.)

A dramatic stock run-up began back in October and WWE stock hit an all-time high at over $31/share in March 2014. Then it plummeted back to earth (down to $11/share) in mid-May following less-than-stellar results of their domestic TV rights negotiations with NBCU. Expectations had soared (the "live sports = live entertainment = lots of tv money!" argument).  A lot of speculative money had poured in. And then rushed out overnight.  The stock had since settled into a groove of trading in a narrow band between $11 and $12 for these Summer months.

With an expensive WWE Network (which is expected to announce lackluster post-Wrestlemania growth) it was quite a surprise when the stock price began climbing.  It zoomed past the artificial $12 ceiling. Wrestling pundits looked around for answers. Everyone wondered: What’s fueling this latest speculation?!

Perhaps WWE leaked the updated subscriber count to Wall Street?  Maybe investors were responding to news of the free trial for international users?  Some fans joked that the combination of Sting in a 2k commercial and WWE signing KENTA was already revolutionizing the business. Sadly, it doesn't look to be nearly that interesting.

Financial websites such as TheStreet and SeekingAlpha along with the Wrestling Observer all pointed to the same reason: “buyout speculation”.  Allegedly, the news of 21st Century Fox (Murdoch) bid for Time Warner (they were rebuffed) has investors in a frenzy. So, they pulled the old “content-rich WWE deserves a take-over” card out of the deck.

People with astute memories might recall back in March when there was a wild rumor that AMC wanted to buy WWE.  What happened then?  The stock shot up from $29 to above $31 and immediately went back down.  Apparently that was an example of a “short squeeze” (stock price jump triggers a rush of buying from short sellers in order to cover their positions).  But that rumor (guess we'll never see CM Punk on "Talking Raw"), like this one, never went anywhere.

And why should it?  As I wrote about in my “let’s play the fun thought experiment” piece on the 5 Companies that Would want to buy the WWE: there cannot be a hostile takeover of the WWE.

Background On WWE Share Structure
As a publicly traded company WWE has two classes of Stock: Class A and Class B. When John Q. Public decides to buy $WWE Stock, they’re buying Class A shares. The Class B shares are controlled by the McMahon family – either directly or in trusts set up on their behalf. As of February 2014, there were a grand total of SIX holders for all Class B shares.
There are about 75 million total shares of $WWE split between 31.3 million Class A shares and 43.8 million Class B shares. While only controlling slightly more than half of the total shares, Vince McMahon retains control of the WWE because his shares have more voting power. As explained in the Annual Report:
We have Class A common stock and Class B common stock. The holders of Class A common stock generally have rights identical to holders of Class B common stock, except that holders of Class A common stock are entitled to one vote per share, and holders of Class B common stock are entitled to ten votes per share…. In addition, the voting power of Mr. McMahon through his ownership of our Class B common stock could discourage others from initiating potential mergers, takeovers or other change of control transactions.
To be Class B shareholders you must be in the McMahon family.
If, at any time, any shares of Class B common stock are beneficially owned by any person other than Vincent McMahon, Linda McMahon, any descendant of either of them, any entity which is wholly owned and is controlled by any combination of such persons or any trust, all the beneficiaries of which are any combination of such persons, each of those shares will automatically convert into shares of Class A common stock.
There Cannot Be A Hostile Takeover
In other words, while WWE is a “public company”, more than 90% all of the voting rights are controlled by the Class B shares which rest solely with Vince McMahon and his family. There cannot be a “hostile takeover”. The only way that another company could purchase the WWE would be if the McMahon’s voluntarily were to relinquish power to an outside entity. As a proud, stubborn and headstrong man, it seems quite unlikely we’d see Vincent Kennedy McMahon give up the keys to the World Wrestling Entertainment Castle under any circumstances outside dire financial trauma.

So, while investors may be salivating at the notion of buying a controlling stake of the WWE, it’s highly unlikely anyone (ever!) will be be able to convince the McMahons to do anything they don’t want to do. Now, I do believe WWE may be open to divesting a troubled division (WWE Studios/WWE Films comes to mind) or even taking on a partner for the Network, but ultimately I don’t see the WWE allowing itself to be gobbled up by any media conglomerate or private equity firm. This should stay true at least while Vince McMahon is still standing on God’s green Earth.

On July 31, the company will report the number of active WWE Network subscribers as of June 30, 2014.  This number will be filed in the SEC 10-Q filing (it should be online within a day or two) and also should be included in the quarterly Trending Schedule filing.  The WWE Network subscription number as of 3/31/14 was 495,000 and post-Wrestlemania (4/7/14) it was 667,287. My guess for 6/30/14 is 747,000. While that would be more than a 50% quarterly increase, it's only a 16% post-WM increase.

Also, I believe that should WWE announce any number of Q2 subscriptions which is lower than 815,000 investors will start selling and the stock price will drop (possibly even below $11/share). And no, I don’t expect them to start bragging about July’s network numbers of free+paid users.  Until they have new leadership hired and completely focused on running the WWE Network, I believe that they’re just going to keep the narrative all about "keeping costs down".  Secretly, they'll just be praying that they can keep subscriber retention above 85% during the all-important August/September 6-month autorenew cliff.

-Chris Harrington (

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