The Analysis of the Stock of WWE Company - Case Study Example

WWE Stock Analysis Highlights of WWE Company The WWE is an entertainment company owned by through individuals. The three individuals are Nasser Al-Thani, Ahmed Al-Neyad, and Khalifa Al-Thani. The three individuals collected the initial capital that was required for the startup of this company and came natured the idea of putting everything in place to have the company work. Today, the company considered as one of the largest entertainment company giving a lot of information to the public. Moreover, the company has continued to create a lot of effect to the members of the public thus gaining reputation and high social recognition in the entertainment industry. The company was founded in 1980, but initial formation began in 1952 when the Capital Wrestling Corporation was incorporated by Vincent James McMahon. This was the premier company that could later give birth to WWE Entertainment Company in the year 1980. Before the WWE entertainment company was formed, it had a number of visions and missions to achieve. This could be the reason behind the Capital Wrestling Corporation being transformed into a global entertainment company in the year 1980. Furthermore, several factors contributed towards its successful transformation into a global wrestling company. Today, WWE remains the most preferred wrestling company in the world enjoying a large percentage of the customer base in the entertainment industry. WWE has specialized in a market niche that gives high returns in the short run. For instance, the company has s specialized in programming of television shows and ideas. Moreover, the company offers digital media services to the public. In addition, WWE publishes videos and articles for the public and other entertainment entities. Individuals are also accessible to the publication services offered by WWE. Most of the services provided by WWE are available on pay preview services. It is important to note that WWE has provided its services to over 650 households globally and created their products in over 35 languages. This is aimed at ensuring that WWE has access to a large market clientele without facing the problem of the language barrier. In addition, the process of offering services in different languages has enabled the company win the loyalty of all its customers, keeping them well informed and accessible to the information and entertainment available to them in store Although the company operates in over 175 countries worldwide, its headquarters are situated in Stamford, Connect suit. Other major branch offices are located in New York, Mexico, Tokyo, Mumbai, Shanghai, Munich, Singapore, Dubai, the stock price of the companys shares is $13.5 by May. This was the highest stock price registered by the company in its history of operation. Besides, this stock price was achieved after the company shore high revenue returns and profitability in the previous years, thus winning the loyalty of potential investors in the market. The companys target price for one year is $17.77. This is a very ambitious vision that the company is struggling to achieve in order to ensure that it accumulates enough funds to finance its expansion activities. Its dividend yield stands at 3.54% showing a profitable company that will remain stable for a long period. Moreover, the high dividend yield has continued to convince potential investors to keep on investing in the company. The beta performance of the company is 0.77 with a range of 20.65 to 9.82 in a span of 52 weeks. Business Description: Operating Segments, Product Information, Leadership Operation of the company is divided into segments. These segments are meant to ensure that the company offers its services to customers without duplicating any or inconveniencing the customers. Moreover, the market segmentation provides specialization within the company thus realizing the quality of work and services. For instance, the media division has a network segment known as the WWE Network. This network segment is charged with the responsibility of creating a conducive and reliable network for the operation of the company services and administrative duties. The second segment in the media division is the Television segment. This segment is charged with the responsibility of offering original television programs that will last for seven hours each for the 52 weeks in a year. Another significant segment of the operation of WWE is the Raw Smackdown segment that airs the Total Divas, WWE Superstars, and WWE NXT. This segment has a total of 13 million viewers on average each week. The Home Entertainment Segment offered an average of eight new titles by the fourth quarter of the year 23014. Similarly, the Digital Media Segment offers WWE apps attracting up to 18 million viewers every week. This figure translates to four hundred and nineteen million page views and 41 million videos watched online. The live events segment offers content for over 140 superstars and Divas. Moreover, this segments creates over 320 live events a year. Their target is to achieve high viewers every quarter of the year. For instance, the first quarter of 2015 saw the company air 73 live events domestically. In addition, the company aired three live events in the international arena drawing approximately 750,000 fans. The consumer product division has the licensing segment that gives licenses for the franchise of the companys products and services. In 2010, the company licensed the Toy Company, WWE #2 Action Figure. In addition, the company licensed WWE game leading to a total sale of 62 million units by 2011. This led to revenue worth $ 3.2 billion generated by the company. The licensing segment also saw WWE being voted as the best bookseller in New York in 1999. The Direct Consumer Merchandise segment realized $13.7 billion in terms of revenue. The WWE studio is charged with the responsibility of producing films and video content. Besides, this segment ensures quality digital content is produced and available for all ages. Investment Summary, & Economic Outlook The investment summary of WWE shows a company that is financially stable and profitable. With the current stock price of 0.77 the company is at a strategic position to continue generating more capital through its sale of shares. Moreover, the company is at a good investment portfolio with its risk rate factor and the rate of returns that are free of any risk standing at 2.05 %. This means that most of the companys investments are free from any risk, thus assuring continuity and survival of the company. CACAPM model also reveals a future market rate of return for 7% giving and established market return of 5.8615 %. This will result into an increase in the price of WWE stock to 14.29 by the end of the first year. The DDM projections for the GDP of the company is a growth rate of 5.8615 % The key economic drivers are the rate of unemployment facing the entertainment industry and lack of wrestlers in the industry. This has led to reduced revenue of the company and thus loss of potential investors. The unemployment trend has been on the rise since the year 2010 with the year 2014 registering the highest rate. Besides, the main points that are used to convince people to buy the company is that it has survived a lot of financial obstacles and is stable. Moreover, the company has established an extensive network of customers who remain loyal to its products and services. The main convincing reasons for buying WWE Company is that the company has diverse investments hence diversified risk. Moreover, the company has no competitors, thus will remain relevant in the market for an extended period. Moreover, it is anticipated that the higher prices of stock can only be realized through the release of the WWE network. Of great significance and reason for buying the company is the embedment of the company in the historical culture of America. This gives the company a high base of customer relation and retention. Industry Overview & Competitive Analysis: The WWE Company is a unique company that cannot be compared with any other in the market. Besides, the company has earned itself recognition in the entertainment industry as a unique company with diversified services. This has led to it being recognized both in the US stock exchange and market analysis. One of the most notable achievement of the company was the award of the best bookseller of its new series of WWE Divas books in New York. There is no competition for WWE Company. The company has remained the monopolistic producer of its content globally. Besides, the company is the only firm that creates wrestling content in the world thus enjoying a broad customer base. Lack of wrestlers in the industry has made it difficult for other competitors to venture into the market. This has led to WWE remaining the only firm in this industry that is still unexploited by new entrants. It thus controls all aspects of the market including process and demand of its services. There is also low barite to entry into the market. The company has not initiated any barrier to deter other market players from venturing into the market. However, financial constraints, technological setup and the logistics involved in the process of setting up a wrestling company is the significant barrier to new entrants in the market. However, despite all these challenges and opportunities, the WWE Company has remained the only firm in the market without any competitor entering the market. The products in the market have seen a high differentiation level with several segments being set up to cater for each product division, this product differentiation is meant to ensure that each market clientele is exploited. Besides, the product differentiation primary objective is to provide to the needs of the diverse customers in the market. For instance, there is the WWE Network that offers streaming and programming of the companys services. The development and production of films are conducted by the WWE Studios while the licensing of the services and franchise of the company is done by the Consumer Product Division. There is also the media Segment that offers television screening and home entertainment. All these product diversification are meant to ensure that the company exploits all the available market without failing to meet the needs of its customers. The result of this is increased revenue for the company. A further industry analysis reveals that the company launched a WWE Network on 24th February 2014 to cater for the demand for live streaming and programming for 24 hours. The markets that have been exploited with this venture are Canada, Australia, Nordics, New Zealand, Singapore, Turkey, Hong Kong, Mexico and Spain. The other markets that were exploited later by January 2015 are UAE, India, Japan, China, and Italy. The result of this market expansion is the creation of 21 original programs and 17 achieved programs. Moreover, there is an increase in number of subscribers to 667,000 but rose to 1 million by January 27, 2015. This raised the 50% drop in share price of WWE stock back to its original price. There are no principal competitors for WWE in the products it offers. However, financially, there are alternative companies in which the potential investors in the market can make an alternative investment. This means that WWE Company faces a risk of losing financial resource sourced internally through its sale of shares. Branding has also been a major challenge to the company with so many affiliated companies seeking to get a license for a franchise of the leading brands of WWE Company. The Companys Historical Financials. The financial performance of the WWE Company has been on a rise and fall trend throughout the past three year. In 2011the company had a higher financial performance but later dropped to 9.50 in 2012. However, the financial performance went further below in 2013 up to 7.5o, which was the lowest mark recorded. Later on. The year 2014 saw an increase in financial performance of the company to 17.5 through the highest score of 29.00 by January 2015, the financial performance had dropped to 13.50, which was the companys cost of capital. Similarly, the operating income of the company has been increasing and decreasing quarterly from the year 2012. It began from $ 2.535 million rose to 6.072, 8.839, 12.22, 1218, 22.52, 50.39, 24.14, 15.10 from December last quarter to January 2015 first quarter. This profit was determined by the quarterly revenue that relied on the cost of goods sold, a factor that kept on changing every quarter. The same was the case with the companys basic earnings per share that stood at 0.1300 in 2015 first quarter. This was a positive improvement from the previous five quarters that registered negative Basic Earnings per Share but lower that the three quarters between January and September 2013. The Basic Earnings per Share in the last quarter of January 2012 was at 0.0065. On the contrary, the diluted Earnings per Share was 0.1300 in the first quarter of 2015, higher than the previous five quarters that registered negative DEPS. Moreover, the DEPS of the first four quarters beginning September 2012 were positive but lower than the DEPS 2015 first quarter. Table : WWE Historical financial data. Source: http://ycharts.com/companies/WWE/key_stats Valuation of the Company and Target Price. When valuing WWE Company, both CAMP and DDM models are used. According to the CAMP model, the current price of the stock of WWE Company is $ 13.50. The Fatma-French Model reveals $ 0.77 stock price with a risk-free rate of return at 2.05%. In addition, it is evidenced that the P/E value is represented by a market return of 7%. When the different models are weighed, the average arrived at is 2.05% + 0.77 * [7% - 2.05%] = 5.8615%. The projected price of WWE for the next year was determined by initiating the current price, the beta for the firm, the risk free factor at government rates, the request rate return for WWE, the formula used is Rj = Rf + Bj * [RM - Rf] = 2.05% + 0.77 * [7% - 2.05%] = 5.8615% Where Rj = Rf + Bj * [RM - Rf] = 2.05% + 0.77 * [7% - 2.05%] = 5.8615% The DDM model uses the formula Pj1 = Pj0 * (1 + r), where Pj0 is the current stock price of WWE. And r is the required rate of return which is the cost of capital. A critical analysis reveals that the company will determine its cost of capital is leaving the determination of the required rate of return to the investor to measure the growth rate of the company. A sensitivity analysis of the different projections of the companys revenue is given by 13.50 * [1 + 0.0586] = $14.29. However, when the DDM Model is applied in computing the sensitivity analysis of WWE Company, the results obtained is Pj1 = Pj0 * (1 + r) = 13.50 * (1 + 5.8615%) = 13.50 * 1.058615 = $14.29 = 13.50 * [ 1 + 5.8615% ] = 13.50 * 1.058615 = $14. 29. Moreover, the projected price of stock in one year using the DDM Model will give the same value indicated above. ($ 14.29). The WACC terminal values and assumptions are given by the figures that were calculated from the financial analysis of WWE Company. Moreover, it was not possible to use FCFE model because the company pays dividends to its shareholders. The EBITDA and EBIT are shown in the table below. Competitive Positioning, SWOT Analysis and Porters Five Forces Analysis SWOT analysis framework can be implemented in internal and external analysis of a firm. Strengths and weakness form a basis of the companys internal analysis while opportunities and threats outline the external factors affecting the business. Strengths. WWE is known to diversify its business across different segments as mentioned earlier. Moreover, the company boosts for the availability of Hollywood stars who add value to its services in the market. In addition, the company enjoys a revolutionary WWE Network that has successfully brought in more customers. There has also been the integration of several events of the company leading to creating of huge influential brands. The company is the sole entertainment industry and thus controls the whole market share in the industry. Weaknesses The main weaknesses facing the company are the continued repetition of the content aired on its programs and films. This has caused a lot of discomfort among viewers. Besides, the company is facing shortage of wrestlers, thus facilitating the continued recycling of character in their films, shows and programs the monthly subscription fees that the company is required is too high for the company to manage. This has led to a lot of problems with relevant authorities. In addition, the cost of promoting the WWE network after its release is expensive and takes a huge portion of the companys revenue. Opportunities Expanding into newly emerging markets is one of the opportunities which the company has to deal with. Increased saturation within the US market makes the companys international strategy more desirable. Therefore, the company exhibits a higher growth potential in emerging markets in regions such as Asia. Technological advances such as the continued use of the companys mobile technology and apps is an opportunity for the company to widen its market share based on the fact that the customers find it easier to interact with the company and even make purchases. Threats The primary threat faced by the company is an increased competition from rivals. The fact the market is in a mature stage even worsens the situation and increases the competitors pressure on the company. In addition, increased market fluctuations is also a factor of worry as this has resulted in prices volatility for the entertainment beans products which is over the control of the company. Moreover, the currency fluctuations in the market are potential threats. Porters Forces The threat of new entrants is considerably low based on the fact that the entertainment chain market in the US is highly saturated. In support of this, Thompson and Arsel (2004) reports that this discourages new entrants due to the fear of losing to the already existing players in the industry. In addition, the capital requirement needed to start the entertainment business is extremely high. This is based on the fact that the player needs to consider finances for rent and leasing building among others. The threat of substitutes is considered as significant. This is based on the fact that there has been a significant increase in the number and range of energy drinks providing consumers with a varied option on what to take other than entertainment. Furthermore, throughout the globe, the media has increasingly focused on discouraging people from television consumption by outlining the adverse effects of caffeine to health. The buyer bargaining power is low because the variety of brand offers within the entertainment market is significantly high to the point that it exceeds demand. It is reported that the lower number of players in the industry has introduced varied entertainment brands in the industry to meet customer needs The supplier bargaining power is considerably high because the business raw material is only available in limited geographic regions with only one producer often services. Furthermore, with large and successful entertainment base in the industry, the competition level for entertainment chains is known to be extremely low. Competitor rivalry in the industry is very high. This is prevalent as the number of different entertainment brands on the market has risen considerably. This has led to WWE remaining the sole provider of the entertainment services in the market. Source: Thompson and Arsel (2004) Investment Risks WWE Company is very sensitive to interest rates in the market. Given the fact that it is the only company in the market, it will be very sensitive to adjust its operations in the market with the rates of interest. Moreover, the company will look forward to operating at a minimum interest rate or even consider generating extra capital internally to avoid getting tied up in high-interest costs (Christoffersen 156). Currency fluctuation is another challenge for WWE Company. Given the fact that the company operates in a global market with branches in over 175 countries, it is expected that currency fluctuations will be a major risk and sensitive factor for the company. The company will therefore always try to value services and assets in one currency to avoid the risks associated with fluctuation in rates of currency exchange. The process of the commodity is a significantly sensitive factor to the company. The company had a heavy investment in its services and gone ahead to diversify the risks associated with its investment. Moreover, the companys main asset is the commodities that it sells. This means that the commodity dealt with by the company are a risk factors and must be treated as a sensitive part of the operations by the management (Daníelsson 96) Conclusion WWE Company is a viable company that has a high potential for investment returns for any investor. An evaluation of its stock and general market analysis reveals that the company is stable and will continue to earn high revenues for the next foreseeable [period. The CAPM. EBIT and the dividend attributed to shareholders have revealed that the company is the best investment. It is therefore recommended for purchase due to its diversification, lack of competition and productivity in the market. The analysis of the stock of WWE Company concludes that the company should be bought due to the numerous advantages revealed by the profitability of the stocks. Works Cited Daníelsson, Jacmac. Financial risk forecasting: The theory and practice of forecasting market risk, with implementation in R and Matlab. (2011) Chichester: John Wiley. Christoffersen, P. F. Elements of financial risk management. (2010). London: Acad. Press. Appendix: Appendix 1: WWE Finacial trend anlaysis. Source: Thompson and Arsel (2004) Appendix 2: EDT Source: http://ycharts.com/companies/WWE/key_stats Appendix 3: WWE Company Financial forecasts. Earnings Est Current Qtr. Jun 15 Next Qtr. Sep 15 Current Year Dec 15 Next Year Dec 16 Avg. Estimate 0.00 0.07 0.27 0.50 No. of Analysts 5.00 5.00 6.00 5.00 Low Estimate -0.05 0.00 0.14 0.24 High Estimate 0.10 0.14 0.43 0.61 Year Ago EPS -0.19 -0.08 -0.40 0.27 Revenue Est Current Qtr. Jun 15 Next Qtr. Sep 15 Current Year Dec 15 Next Year Dec 16 Avg. Estimate 147.37M 146.33M 632.47M 708.03M No. of Analysts 4 4 5 5 Low Estimate 122.49M 125.61M 571.45M 601.53M High Estimate 159.80M 155.40M 655.80M 780.00M Year Ago Sales 156.30M 120.20M 542.60M 632.47M Sales Growth (year/est) -5.70% 21.70% 16.60% 11.90% Earnings History Jun 14 Sep 14 Dec 14 Mar 15 EPS Est -0.20 -0.17 -0.08 0.02 EPS Actual -0.19 -0.08 -0.02 0.13 Difference 0.01 0.09 0.06 0.11 Surprise % 5.00% 52.90% 75.00% 550.00% EPS Trends Current Qtr. Jun 15 Next Qtr. Sep 15 Current Year Dec 15 Next Year Dec 16 Current Estimate 0.00 0.07 0.27 0.50 7 Days Ago 0.07 0.07 0.28 0.52 30 Days Ago 0.06 0.05 0.25 0.52 60 Days Ago 0.07 0.05 0.30 0.54 90 Days Ago -0.03 0.00 0.32 0.49 EPS Revisions Current Qtr. Jun 15 Next Qtr. Sep 15 Current Year Dec 15 Next Year Dec 16 Up Last 7 Days 0 0 2 1 Up Last 30 Days 0 0 2 1 Down Last 30 Days 3 1 1 1 Down Last 90 Days N/A N/A N/A N/A Growth Est WWE Industry Sector S&P 500 Current Qtr. 100.00% 35.90% 24.60% 7.20% Next Qtr. 187.50% 107.20% 23.30% 11.00% This Year 167.50% 27.40% 13.90% 1.50% Next Year 85.20% 24.70% 12.10% 12.80% Past 5 Years (per annum) -43.68% N/A N/A N/A Next 5 Years (per annum) 20.00% 18.85% 15.45% 7.23% Price/Earnings (avg. for comparison categories) 50.59 28.45 25.57 21.28 PEG Ratio (avg. for comparison categories) 2.53 1.35 0.80 -0.15 Source: Yahoo!, 2015, World Wrestling Entertainment Inc. (WWE), retrieved from Read More