WWE’s Financial Stock Questioned

SeekingAlpha.com has posted an article that discusses WWE’s recent stock development alongside how it believes the company will do financially over the next few years.

According the website, despite the all-time high of stock, which checks in at near $31.40 as of Friday morning, the company could see some significant financial challenges over the next few years. It makes the argument that WWE has been operating inefficiently for some time.

“Operating profit margin at WWE has been falling steadily for the last three years and is now 4.1%, much lower than the industry median of 16.5%.

Just three years ago, operating margins at WWE were above the industry median, peaking in March 2010 at 19%. Falling margins have to be a concern for WWE. The return on net operating assets, which is a measure of how efficiently the company is operating, has also been falling in the same period, falling to 12% now from a peak of 70%. This measure is also below the industry median and is a sign of management’s inefficiency in generating returns on its assets.”

It also notes that WWE has had a weak cash flow over the past several years, which could prove difficult to counteract against competition.

“Weak cash flows are a sign of poor earnings quality and while the company has made investments to set up the 24/7 video channel, it remains to be seen how much this will cannibalize the pay-per-view revenues of WWE. While WWE content remains popular, there is increasing competition from other programming like Ultimate Fighter, and it remains to be seen if WWE can continue to draw audiences with new content.”

Lastly, the site also mentions that the company has a major domestic investment with little from around the globe, an interesting note that may come as a surprise to some.

“WWE generated over 75% of its earnings from North America and is yet to gain as much popularity internationally. While CFO George Barrios acknowledged that WWE was looking to expand its footprint internationally, especially in markets like India, that will likely take some time, and the audience will also be influenced by other competing products. It’s not clear if consumers in those regions will be willing to shell out the money for the content, given that many did not grow up on a steady dose of wrestling. The poor earnings quality at the company may mean that earnings in the coming quarters will be down for the count.”

The entire article can be found here.

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