UFC and World Wrestling Entertainment (WWE) have created a new Sports Entertainment behemoth, but is TKO stock worth investing in?
Nealy 24 years ago on October 19, 1999, the World Wrestling Federation Entertainment, Inc. (now known as WWE) became a publicly traded company, launching its IPO on the NYSE under the ticker symbol "WWF."
SmackDown is transitioning from Fox to Comcast's USA Network under a five-year agreement reportedly valued at approximately $1.4 billion. This represents a 40% increase from WWE's previous contract with Fox. However, despite this significant uptick, investors were not enthused, possibly hoping for a higher valuation for SmackDown and leaving questions lingering about the future home of WWE’s other premier broadcast, Raw. Shares of TKO Group plummeted by up to 16% on Thursday, trading at much higher than usual volumes.
The merger between UFC and WWE under the banner of TKO Group Holdings appears to be driven by mutual strategic benefits. The combined strength of both franchises allows for a wider reach in the sports entertainment sector, reaching more than a billion fans globally.
Endeavor has a 51% controlling stake in the new company, with existing WWE shareholders hold a 49% share.
Endeavor's existing strength in the UFC brand, coupled with WWE's global fanbase, offers cross-promotion potential that could drive brand awareness and deepen the penetration of their overlapping fan bases. Such a collaboration leverages the assets of both UFC and WWE in a market where linear TV is shifting towards streaming, making live sports content more valuable than ever.
Source: Yahoo Finance
WWE stock reached its pinnacle on August 24, with a record high of $118. Financial pundits and Wall Street experts had forecast a 24% leap in EPS from 2023 to 2024, hitting $3.15. Before the merger, WWE shares were trading at a forward P/E of 31x, which is considerably lower than its historical five-year average of 52x. To put things in perspective, Madison Square Garden Sports, a close competitor in the mid-cap entertainment sector, trades at a whopping 65x.
Over the past year, Endeavor Group recorded a total EPS of $0.56 (diluted EPS of $0.56)with a price-to-earnings ratio of around 40x. Notably, before declining to $22, EDR stock had reached its zenith at $34 in late 2021. Future projections indicated 5.8% growth in Endeavor Group's earnings.
Several factors could propel TKO shares upwards:
The heavy sell-off post-IPO demonstrates the lingering uncertainty about the merger between UFC and WWE under TKO Group Holdings. The new firm has the potential to marry the strengths of two major players in the sports entertainment industry but also faces a changing media landscape with the prevalence of streaming as well as challenges from competitors and potential internal integration issues.