NEW YORK (TheStreet) -- World Wrestling Entertainment (WWE) shares were nearly cut in half, as investors digested the latest television deal, and were clearly unhappy with it. Analysts have also voiced concerns that the company's return to profitability may happen later than expected.
Under the terms of the agreement, Raw, WWE's flagship show, returns to the USA Network, while Smackdown will run on Syfy. WWE executive Paul "Triple H" Levesque made the announcement in a press conference at NBC's Upfront presentation.
Currently, Raw is televised live on the USA Network, while Smackdown is taped on SyFy on Tuesday, and then airs on Friday.
Shares of WWE were plunging in pre-market trading, losing 47.1% to $10.54.
Following the announcement, WWE said that it expects to potentially double or triple its 2012 OIBDA (operating income before depreciation and amortization) to a range of $125 million to $190 million by 2015.
The company also provided an update on the WWE Network, something CFO George Barrios said was a "ground breaking event" in an interview with TheStreet earlier this year. Stamford, CT.-based WWE said it needs between 1.3 million and 1.4 million subscribers at "steady state" on a global basis for the WWE Network's incremental OIBDA to offset the complete cannibalization of the Company's Pay-Per-View and SVOD businesses. "At 1.3 million to 1.4 million subscribers, the Company's Network segment, which includes the results of WWE's Network, Pay-Per-View and SVOD businesses, would generate OIBDA results of $40 million, (+/- 10%), which is on par with the OIBDA profits generated by the Company's Pay-Per-View and SVOD businesses in 2012," the company said in the press release.
"We continue to achieve significant increases in the value of our largest television agreements, a key component of our business plan" stated Vince McMahon, Chairman and Chief Executive Officer. "The rising value of our content coupled with the global expansion of WWE Network will provide the foundation for long-term growth that continues to transform our business over the coming years."
"With the favorable renegotiation of our largest television agreements, WWE transitions to a subscription-based business model for future growth," added George Barrios, Chief Strategy & Financial Officer. "Successful execution of our WWE Network strategy could significantly raise the Company's earnings profile and better reflect WWE's tremendous global appeal and brand strength. With such execution, the Company anticipates sufficient financial resources, including debt capacity, to fund growth, support ongoing business requirements and maintain its current dividend."
Despite the new television deal, investors were clearly concerned about the viability of the Network and the television deal, as several analysts pushed out earnings estimates, with one downgrading the company. Here's what a few of them had to say.
PAA Research analyst Bradley Safalow (Long, $25 PT)
"As we outlined in our note yesterday, we thought the "pivot point" for the stock on the mark to market for WWE's domestic TV right fees was roughly 1.75x. A renewal above that level would likely have driven shares higher, something less and the stock could have sold off (although we would argue perhaps not as much as bears would have thought). We estimate the company's domestic TV rights will increase roughly 1.7x on average over the life of its new contract with NBCU. While that's not the outcome we were hoping for, it certainly isn't a bad one for the company. More importantly based on the stock price action heading into the print, we would argue shares would not have done much in response to that data point. That's not what happened after hours.
WWE shares were gashed after hours in response to the company's press release which included quixotic, confusing, and ultimately concerning 2015 guidance. Suddenly, investors are left to question all that they thought they knew about the WWE Network and its pathway to profitability. In short, the company's guidance includes a level of spending related to the Network which belies WWE's extraordinarily low content costs and efficient distribution. In general, WWE investors remain highly skeptical of management given past failures to deliver on promises such as the XFL and WWE Films. Over the past 5-6 weeks the company's initial Network subscriber numbers and the mark to market on the domestic TV rights fees both fell short of expectations, although in both cases management never provided specific guidance around those data points. Either way, investors are left with a feeling that the company consistently 'overpromises and underdelivers'."
Needham analyst Laura Martin (Buy, $30 PT)
"After the close, WWE issued a press release quantifying the impact of its new US TV license deal for RAW and SmackDown, as well as profitability under various OTT subscriber scenarios. We are raising our FY15 TV license OIBDA but lowering our total WWE OIBDA based on this guidance. Because we estimate an average of 1.5mm OTT subscribers in FY15, we lower our OIBDA estimate to coincide with management guidance of $80mm (down from $180mm). Although we reiterate our BUY rating because we view WWE as a Netflix-substitute, we understand that WWE's updated disclosures make WWE more of a 2016 story in our view (rather than 2015)."
Benchmark analyst Mike Hickey (Hold, No PT)
"The Company's valuation could take a heavy beating this morning, as the new domestic TV deal with NBCu likely disappointed investors over limited visibility / believability on the ultimate success of the Network. Our investment foundation for the Company's anticipated OIBDA acceleration has transitioned from a 2X increase in domestic TV rights fees over an option for incremental OIBDA from the WWE Network, to the necessity for the Network to provide the main driver for believed OIBDA growth. The initial subscriber number from the Network disappointed investors, and we have received limited visibility to where subscribers are currently tracking or where churn will ultimately settle; an uncomfortable silence that will likely extend until early August. We remain optimistic for the global success of the WWE Network, but consider the OIBDA growth shift to the Network as an unfavorable risk rebalance over the near term."
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--Written by Chris Ciaccia in New York
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