Wells Fargo takes Sell sign off WWE, as strategic process plays out
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With the smell of a potential sale in the air for World Wrestling Entertainment (NYSE:WWE), Wells Fargo has upgraded the stock to Equal Weight, seeing a "reasonable probability" for success in a strategic review.
"We capitulate as our prior negative thesis around TV rights renewals is moot due to WWE's strategic process," analyst Steven Cahall said.
A financial buyer could justify an enterprise value-EBITDA multiple in the mid-teens with precedents from other IP assets, such as UFC at Endeavor, Cahall notes. With assumptions about rising TV rights values, he derives an enterprise value of about $8B, or $100 per share (about 11% upside from current).
Strategic buyers face a "different calculus," he noted, as they'll self-distribute WWE through their own networks and/or streaming platforms and weigh WWE's annual ad revenue plus live events and sponsorship.
"They're unlikely to pay more than financial buyers, though," as that $8B enterprise value is about nine times strategic's EV/sales. (Compare Amazon.com paying about 8.5x EV/sales for the MGM studio, he noted.)
As for strategic investors, nobody's commented yet but he expects reasonable interest from names like Netflix (NFLX), Amazon.com (AMZN) and Comcast (CMCSA) "since WWE provides lots of hours of content and has a dedicated audience," though Netflix might prefer just rights to the whole company, and he views Comcast as less likely than many other investors.
Investors have about six months of patience on a potential takeout thesis, he said, so "WWE, with Vince McMahon back as Chairman, has to watch the clock as it looks to simultaneously drive pricing in renewals and sell the company," Cahall noted. If a deal breaks, he expects the share price to fall below $75 per share.
WWE hired outside advisers last week to help it navigate the process of a potential sale.