Shares of World Wrestling Entertainment (NYSE: WWE) surged 20 percent last week when the company announced that its WWE Network had reached one million subscribers. However, not everyone is convinced that the one million number is particularly meaningful or that the future of the WWE is bright. Belus Capital Advisors analyst Brian Sozzi is one of WWE’s skeptics, and he recently gave four reasons why investors should be cautious when it comes to WWE stock.
Padding the stats
While reaching one million network subscribers is certainly an accomplishment, Sozzi attributes the majority of recent subscriptions to free promotions that the company has been running. After the network launched in late February of 2014, the service gained around 700,000 subscribers by the end of July. However, subscriber growth grew by just 31,000 in Q3.
How did the network re-accelerate subscriber growth in Q4 to reach one million subscribers? They gave away an entire month of access (November) for free. Stozzi believes that counting customers that subscribe for free is a poor indication of the true demand for the subscription service, especially when customers can cancel at any time. WWE is currently allowing new subscribers free access to the network during the month of February as well.
Aging talent
Sozzi believes that the recent signings of Hulk Hogan (age 61) and Ric Flair (age 65) are indications that the WWE is desperately clinging to its over-30 demographic who doesn’t connect well with the company’s younger talent. A perennial WrestleMania attraction is a match featuring the Undertaker, who will be 50 years old if he performs at this year’s show. A recent WWE storyline has pitted Triple H (45 years old) against newly-acquired Sting, who will be 56 years old by the time WrestleMania rolls around. The clock is ticking on the careers of these talents, and Sozzi is uncertain if they will take a large base of paying customers with them when they disappear from the spotlight.
Injuries
Sozzi points out that injuries to top talents seem to be more prevalent in today’s business than in years past. Performers take more risks and the matches are more fast-paced, a recipe for high-priced mistakes. Last year’s WrestleMania headliner, Daniel Bryan, missed eight months of action due to a kneck injury that occurred shortly after the big event. Sozzi believes that injuries lead to fewer ticket sales and lower ticket prices at live events.
Vince MacMahon
Sozzi believes that CEO Vince Mac Mahon is the WWE’s largest asset, but at age 69, MacMahon won’t be around to run the show forever. “Ultimately everything you see on TV each week is the byproduct of Vince McMahon,” Sozzi explains. “He remains very in the trenches week to week and if you pull him out...what happens to the company longer term?”
It’s likely that MacMahon’s daughter Stephanie or his son-in-law Paul “Triple H” Levesque would take the reins upon Vince MacMahon’s departure, and neither has a proven track record running a nearly billion-dollar global company.
The market doesn’t seem to care
The huge jump in WWE’s share price indicates that investors don’t share Sozzi’s opinions on one million network subscribers or the future of the WWE. WWE is expected to release its Q4 earnings report on February 12.