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Why Focusing On WWE's Recent Ratings Struggles Is 'Rather Short Sighted'

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Why Focusing On WWE's Recent Ratings Struggles Is 'Rather Short Sighted'
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World Wrestling Entertainment, Inc. (NYSE: WWE) has had some historically bad ratings in recent months. So much so, that Chairman and and CEO Vince McMahon made a grand return on the December 14 edition of "Monday Night Raw." It was his first television appearance in over a year -- possibly the longest stretch of time he's ever been off television.

McMahon's appearance, coupled with the world heavyweight championship win of emerging star Roman Reigns gave "Raw" its highest rating in months. It was also the first time the company's top prize changed hands on live television since 2011. Macquarie finds this run of bad ratings press "commentary to be rather short-sighted."

The firm cites the brief absence of the company's two biggest stars -- John Cena and Brock Lesnar -- as one reason for the ratings dip. Perhaps more important, the NFL's "Monday Night Football" is consistently one of the biggest cable television draws every year. "MNF" and "Raw" run in the same 8 p.m. to 11 p.m. ET time slot.

Shares of WWE were trading above $20 in late October, but dipped below $16 as recently as mid-December. The stock traded recently at $18.62 and Macquarie is surprised it isn't lower.

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Roman Empire

"[Cena and Lesnar] are, in our opinion, WWE's most popular stars but both have probably reached their popularity ceiling," Macquarie analyst James Clement wrote in a Tuesday note. "In other words, we don't see either taking WWE's popularity to the next level, particularly among some of WWE's younger, newer fans." Enter Reigns and a host of other younger stars.

The company has been building around Reigns for over a year, culminating in his championship victory on December 14. Wrestlemania season is typically the most important time of year for the company and its stock. Wrestlemania 32 hopes to set an attendance record when it comes to AT&T Stadium in Dallas, Texas, in April.

Dwayne "The Rock" Johnson, who has had quite the box office run over the past year, announced on Monday that he will be appearing at Wrestlemania 32. Coincidentally, Johnson and Reigns are cousins from the famous Anoa'i wrestling family.

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WWE Network Growth

"That said, if WWE can't resume building its Network subscriber base on a year-over-year basis during WM season, the stock will likely see some weakness," Clement wrote. The firm maintained a Neutral rating and $18 12-month price target.

FBN Securities initiated coverage on the stock in October, saying the WWE Network was "clearly a viable business" and at that time said, "Due to the operating leverage inherent in the OTT model, in the long run its existence should prove better for shareholders and fans alike as subscription based businesses tend to have more visibility going forward than PPV ever did or could."

As of its Q3 earnings report, WWE Network has 1.3 million subscribers, which was a 79 percent increase year-over-year. Since the release of its Q3 report, the network has launched in India, Germany and Japan.

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Latest Ratings for WWE

DateFirmActionFromTo
Jun 2017Morgan StanleyInitiates Coverage OnEqual-Weight
Mar 2017CitigroupInitiates Coverage OnBuy
Jan 2017MKM PartnersInitiates Coverage OnBuy

View More Analyst Ratings for WWE
View the Latest Analyst Ratings

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