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Hedge Fund Manager On WWE: Giving The Service Away For Free Probably Won't Help Earnings

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World Wrestling Entertainment, Inc. (NYSE: WWE) has been making headlines consistently over the past few days.

On Monday, Macquarie upgraded the stock after WrestleMania kicked off. On Tuesday, shares were up 20 percent on strong network subscriber numbers.

On Wednesday, Lemelson Capital Management’s Chief Investment Officer, Emmanuel Lemelson, spoke with Benzinga about that rally. “WWE popped yesterday," he said, "because it reached its OTT network subscribers initial milestone of 1 million earlier than most expected.”

Lemelson continued: “The increase in subscriptions (37 percent increase since last reported at the end of third quarter 2014) was undoubtedly driven by the free November promotion, the launch of the service in the UK and the Royal Rumble pay-per-view event.

Related Link: Analyst On WWE 'Raw'

"Needless to say," he added, "driving subscription figures by giving the service away for free is not likely to have a positive impact on earnings.

"It’s important to recall that the financial models for the OTT network were based on previous annual subscription figures, which were indeed much higher and have consistently come down, along with contract requirements, until eventually arriving at zero cost.”

A Look Forward

Lemelson said the OTT network is likely "far from profitability as revenue declines and costs remain fixed," and although it was a "brilliant" idea, "initial strategic execution left much to be desired," he said.

“WrestleMania on March 29 will likely drive more subscriptions to the network and perhaps increase the intrinsic value of the company as a whole, but it won’t be enough to materially and positively impact earnings, or the diminishing shareholder equity," he added.

The Bottom Line

The hedge fund manager's thesis remained the same: “The company’s IP continues to have rich intrinsic value, but to unlock positive long-term economics is going to require new fiscal leadership.”

Javier Hasse and Brianna Valleskey contributed to this report.

Latest Ratings for WWE

DateFirmActionFromTo
Nov 2018JP MorganUpgradesNeutralOverweight
Oct 2018Morgan StanleyMaintainsOverweightOverweight
Oct 2018CitigroupMaintainsNeutralNeutral

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BACKeefe Bruyette & WoodsDowngrades29.0
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