Should investors be worried about WWE?

NEW YORK, NY - AUGUST 09: WWE Championship Belt presented during the Beyond Sport United 2016 at Barclays Center on August 9, 2016 in Brooklyn, New York. (Photo by Roy Rochlin/Getty Images)
NEW YORK, NY - AUGUST 09: WWE Championship Belt presented during the Beyond Sport United 2016 at Barclays Center on August 9, 2016 in Brooklyn, New York. (Photo by Roy Rochlin/Getty Images)

For nearly 20 years, World Wrestling Entertainment (WWE) has been the be-all-end-all of the wrestling world. However, with All Elite Wrestling (AEW) representing WWE's first real competition in almost 2 decades and the company experiencing a ratings slump, dwindling attendance and reported low locker room morale, should investors be worried about WWE?

Back in March, WWE was riding high — the stock was near all-time highs of almost $98 a share, and it's biggest event of the year, WrestleMania 35, grossed $16.9 million, breaking a MetLife stadium record as its highest-grossing entertainment event in its history.

All was well for the company until it wasn't. On April 25, WWE announced that its first-quarter earnings fell well short of Wall Street's expectations. And over the past year, TV ratings have plummeted 19% compared to Q2 2018.

Should investors be worried?

Dave Meltzer, editor of Wrestling Observer, tells Yahoo Finance that even though WWE is by far the market leader, the company’s creative — story lines, staging, etc. — no longer resonates with audiences.

WWE CEO Vince McMahon has reportedly admitted that the product needs some changes. In late June, WWE announced that it hired former wrestling executives Paul Heyman and Eric Bischoff to be executive directors of the company's TV product. Heyman, will run “Monday Night Raw,” and Bischoff the former president of WWE's biggest former rival, World Championship Wrestling (WCW) will run “Smackdown Live.” The move is seen by many as WWE moving away from the current kid-friendly "PG era" toward edgier programming in order to draw more teenagers to WWE.

Marci Ryvicker, managing director of Wolfe Research, which covers the company, tells Yahoo Finance that investors’ concerns about WWE creative are reflected in the stock’s performance of late.

"You're actually seeing those fears in the stock price. I do think that the stock in the company kind of suffered from a lack of clear communication ... There hasn't felt like there's real visibility on how to build to their guidance for the year. I think that they sort of mishandled how they provided expectations to the Street, which causes uncertainty around the international deals."

However, Ryvicker believes that the fundamentals of WWE remain strong.

"We think the fundamentals are intact. We think that the fourth quarter is going to be a significant positive catalyst. We will have all of the international content deals signed. For the most part, the company plans to update the Street on the financial impact of those agreements, not just on 2020 but on the subsequent years you're going to have WWE on both Fox and at NBC Universal."

Meltzer concurs, pointing out that WWE has TV deals with Fox (FOX) and Comcast (CMCSA) owned NBC Universal to the tune of $2.35 billion combined. "WWE is very safe because of its TV revenue, which is a luxury that no wrestling company in history has ever had, so they're idiot proof. WWE could deliver the worst product in history, and there's still going to be profitable for at least five more years."

Healthy competition?

Meltzer thinks that competition from AEW could give WWE the shake up it needs. Led by former WWE superstar Cody Rhodes and Jacksonville Jaguars exec Tony Khan, AEW has raised more than $100 million to get AEW off the ground and has poached top talent, including wrestling legend Chris Jericho, from WWE. It’s also secured a deal with AT&T'S (T) WarnerMedia to launch of a new weekly wrestling show which will air on TNT this fall.

"[Vince] will counter AEW every way possible, that's just how [he] is. Vince hasn't had anyone to bully for years, and now that he's got someone he's gonna try and do that."

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Reggie Wade is a writer for Yahoo Finance. Follow him on Twitter at @ReggieWade.

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