World Wrestling Entertainment (NYSE: WWE) has done a pretty good job of carving out a niche in a difficult and highly-competitive digital television market but is it a good investment?
The company’s WWE Network has attracted 1.458 million paying subscribers, which is no mean feat. Yet it is struggling to retain subscribers and expand its audience beyond hard core wrestling marks (fans).
All is Not Well at WWE Network
The WWE network had 1.52 million subscribers at the end of second quarter 2016 and 1.458 million at the end of third quarter, Inquisitr reported. That number is actually lower than the 1.49 million paid subscribers the WWE reported for third quarter 2015.
WWE CEO Vince McMahon is trying to reverse that decline by giving away specials and restructuring programming. Some early suggestions include a new wrestling commentary show; hosted by WWE personalities Paul Heyman and JBL, reducing the number of pay per views and adding a program based on ECW (Extreme Championship Wrestling); a defunct WWE-competitor that was a fan favorite back in the 1990s.
Whether any of this will work remains to be seen. WWE has been struggling recently with an unpopular new programming format; on its two cable TV shows Raw and Smackdown. Fans dislike a decision to keep the shows’ entirely separate. Its’ also facing serious competition from an upstart LA wrestling show called Lucha Underground which has become a fan favorite.
Is WWE Making Money?
All this will cause both wrestling marks and investors to ask the important question: is WWE making money? The answer to that query is yes.
World Wrestling Entertainment reported a profit margin of 6.75% for the third quarter of 2016, ycharts data indicated. It also generated $24.71 million in net income and a free cash flow of $8.574 million. For all its trouble WWE is making money from digital television which is more than one can say for Netflix (NASDAQ: NFLX).
Netflix reported a profit margin of 2.25%, a free cash flow of -$489.41 million and a net income of $163.11 million for the third quarter. Netflix is struggling to make money with far greater resources than WWE has, so we really cannot knock Vince McMahon. His network is actually making money without expensive programming or a deep pocketed benefactor like Amazon (NASDAQ: AMZN).
Does WWE Have any Float?
Despite that value investors will raise another interesting question about WWE. That question would be: is WWE generating any float?
The attraction of its subscription model is a regular stream of revenue in the form of float. The hope is that all those wrestling marks shelling out $10 a month will give WWE a steady stream of cash. What Warren Buffett likes to call float.
The answer to the float question is sort of. WWE reported generating $37.30 million in cash from operations and having $67.57 million in cash and short-term investments at the end of third quarter. Unlike Netflix; which reported losing $1.162 billion in cash from operations, WWE actually had some money left over at the end of the quarter.
So it is generating a little float from its network. Vince McMahon and his family might be doing something Netflix is not; they are actually generating float from digital TV.
Can You Make Money from WWE Stock?
Simply having float does not make a company a good investment. There are companies; like Amazon (NASDAQ: AMZN), with lots of float that are lousy investments.
WWE seems to be the reverse of that, it makes shareholders some money while having little float. Investors in WWE received a dividend yield of 2.59% on December 2, 2016; and an 11.46% return on equity on September 30, 2016.
Those shareholders will receive a 12¢ dividend on December 13, 2016. That dividend is also pretty steady WWE has paid a 12¢ every quarter since December 2011, or five years straight. For all of its faults WWE is a decent dividend stock.
So yes you can make a little money from WWE stock. If you’re a wrestling fan and you’re looking for a dividend, WWE stock is not a bad investment. For everybody else there are other stocks with better dividends out there. At the end of the day, WWE is a decent investment and an impressive company because it is making some money in a business where other better financed organizations are not.