Steven Borovay, CFP

Long only, special situations, contrarian, deep value
Steven Borovay, CFP
Long only, special situations, contrarian, deep value
Contributor since: 2014
Company: Bottomups.org
Another good article Chris. In the last couple of earnings calls Barrios has toned down the rhetoric on foreign expansion. In India there will be minimal subs until after this year due to contract with Ten Sports and restrictions on televising live PPV events. The tone of the calls are now more reserved without management throwing out wild projections. They've learned their lesson on that and figured with lower expectations there could be more positive surprises.
What is shocking to me, is that although we're in a terrible market, WWE is only up 10% after the earnings call of last year where they posted a .40/share loss for 2014 and will hit about .33/share gain for 2015. Additionally, sub count will be up from 816K to about 1.3 mil year over.
Wayne excellent article. The wild card in improving RAW and Smackdown's ratings is NXT. As it's popularity increases with WWE's 5 data scientists viewing numbers on the Network side, there will be a point in time where it can be incorporated in one of the shows. Sometimes, as far as the main roster, less is more.
Atticus appreciate all your well thought out comments.
I think the long term goal has stayed the same (3-4 mil) and has been factored into the stock price. It might take 4-5 years, but it's a positive that WWE management stay focus on the short term.
As far as near term growth, there were 170,000 subs that opted out from the 1st to 2nd quarter of 2015. These are the Royal Rumble and WM crowd. That alone will push the number after WM32 to close to 1.5 mil. Also, as the PPV stayed flat year over year, my projections were a negative 10%. It seems that those loyal to PPV will remain, but I chose the most conservative projections going forward.
As of now NXT is operating at a loss, but I doubt that's the longer term plan. NXT is an option to the main roster and it appears special events (NXT Brooklyn and the ironman match between Bayley and Banks) drew well on the Network. This will only serve to draw more people to the Network.
Cannibalization of RAW and Smackdown based on viewing on cable is down, however, with alternative ways of viewing diluting current ratings it's difficult to measure other than saying the trend is down. I think this is where NXT plays into the picture. As currently the only exposure is on the Network, incorporating more from the minor leagues should draw more to the ratings. Too much main roster, and although a number of NXT personnel have transitioned, the NXT product is so different than what's shown on cable. Incorporating this on Smackdown in the near future (based on viewing stats on the Network) looks to be a viable option.
In retrospect Vince and management saw that PPV was going the way of the horse and carriage and it will always be a fine balance between cable and the Network. No transition ever runs smoothly.
Having viewed competing products I truly believe the NXT will drive Network growth and eventually be incorporated into Smackdown. Having been an avid baseball fan, I never could have gotten too much baseball. The fact is that the Network expands the reach over cable by over 3 to 1. Time will tell though how successful the Company will be. To date since I've been writing about WWE (spring of 2015) I've been pretty close to accurate on my assessments.
Jeremy appreciate your analysis. It's difficult to measure what's priced into the stock and relative to past history without the Network it's at the top of the range with $130 million more in cable contracts to 2018. To look at current p/e or trailing earnings is a mistake as I seriously doubt that future growth is already priced into the stock. With boots on the ground comes increased interest in product. India should start their Network growth phase in 2017 when the Network goes live on PPV events.
For my long term position I have no price target. For the most recent one I took at $16.15/share is I can get $2/share that would be nice. Also bought some Jan 2017 15 calls that I will hold long term.
Thanks for your feedback.
Steve
Dante I do it because I enjoy writing and also need to see the downside from rebuttals. So far since I've starting investing in WWE last summer I've done really well. Truthfully, I don't think my articles have any effect on the stock price.
Bram good insights on the Company. As a long term holder the stock is starting to trade on value and not growth. The market determined awhile back that this Company's growth record is spotty especially with the surprises on inventory write down. The Gap (GPS) has used buy backs over the years, due to lack of core growth, that give them a better p/e and along with the divvy made it more attractive to investors. I think ZAGG is going to trade at higher prices and on a more fundamental basis by reducing the share float. In GPS case I think eventually the Fishers or whomever take them private. With ZAGG the next step after the buybacks is to pay a dividend.
The opinion on this stock is it's "wrestling". It's not a Testla who lost less millions than expected and on that plus news it might produce an affordable car two years out goes up to infinity. It's not Netflix who is selling currently at over a 300 p/e and next year's forecast shows it selling over 100. Despite the positive beat and a first time year over forecast that gave a tremendous amount of color (and not negative), the stock collapses. It's too easy to figure out that not only does the market not understand what the Company is doing, it will only be when they show what the game changer in the Net does will it react positively. Because of this lack of understanding I had a trading position that I've made a pretty chunk of change on. Again when it dipped bought some more.
Atticus agree with your assessment with a slight bump up. Also where did you get the numbers for PPV on India?
Appreciate
Atticus your right about the 1st and 2nd Q 16 being pivotal in the Network growth. With the additional countries it's impossible to predict what the number will be. After WM in April the key metrics going forward will be established. India, due to limitations in broadcasting live PPV events until 2017 and how India cable can broadcast the 3 main PPV events live, is impossible to gauge. I think that 250-300K more subs after WM is very possible....but time will tell.
Another hit article that comes just before the release of earnings. Michael what your missing can be found in the many articles I've written on the Company. If you mention WWE in the same breath as Netflix the big difference is WWE owns it's content and Netflix, other than their own series, pays big bucks to others for content. Also, if you listened to the c.c. last earnings Barrios said that as PPV was seasonal that might be what you see as sub count. Thus the benchmark is year to year comparisons as far as growth.
Funny, how all these negative articles come out just before an earnings release.
Unfortunately very little research went into this article. I've written over 10 articles on this stock and the Company has paid a dividend since 2004. Read my article on
http://bit.ly/1Gw21Nb
The big miss here has been the transition from PPV to the Network. Cash flow was crippled from the large 50 million dollar investment in the Network starting in 2013. With the transition to the Network cash flow has increased tremendously over the past few quarters. With an increase of cable contracts to 2018 of 105 million the cash is there to pay the dividend. My calculations reveal that by the later part of next year or into 2017 there will most likely be an increase in the dividend.
My articles has been almost spot on with WWE with few exceptions. The transition to the Network along with further development of NXT leave the Company with a much brighter future globally than ever before.
PD thanks for the reply. In this market environment I believe, like you, preserving capital is more important than anything else. Also it's important to focus on why not to invest in a company.
With that said, the driver of WWE stock prior to the inception of the Network was both expectations of the Network and cable deals. After the Street saw the cable deals along with Network sub counts were not the reality, the stock collapsed. Management did a horrendous job in putting out unrealistic potential numbers on both counts and the stock paid the price. Stocks always tend to overreact to the upside on potential and then downside when the negative comes out. About the time it bounced off the bottom I bought a substantial amount of shares.
A couple of months after the collapse I started writing about the stock on Seeking Alpha. As my focus is just WWE, my projections on sub count pretty much hit either the expected range or just beyond it. On WWE it was more difficult to predict numbers due to managements not disclosing much information other than when they hit a milestone or a quarterly release. Now with the last quarter release they projected a sub count range at the end of the 3rd Q 15. Going forward it's easier now to predict sub count as there will always be a bounce up from Royal Rumble and Wrestlemania were individuals become permanent subs. The key number going forward will be sub count at the end of the 2nd Q 16.
As a decades successful investor in individual stocks, the metrics I look at have for the most part worked.
I appreciate your feedback PD for as much as I have invested in WWE, I definitely need to see the other side of the coin. Steve
An article that is definitely very "backward looking". Couple of questions.
1. How much have you factored in the increase of $105 million due to cable contracts to 2018?
2. When Facebook broke down after the initial offering to the high teens from the thirties it was due to "backward looking". Then we all know how they monitized the base with mobile and other investments that paid off and the stock is now in the 90's. So how can you value a company going forward based on a 12 month past analysis without using projections in the future?
3. If you review my articles on WWE, I've been right on for the most part. With a basis of just under $11/share WWE, at time of purchase I viewed WWE as a tremendously undervalued due to numerous factors. Based on what I see (in my next article) the static PPV model will be equaled by dynamic Network model on a OIBDA basis at the end of the 2nd Q 2016 (1.3-1.4 million subs). How could this dramatic change not be factored in any analysis that fairly evaluates any stock going forward? Further, in one of my past articles I showed where the average value of WWE stock over 10 years when the company started paying dividends was from $13-17/share. As WWE is just outside the top range, very little of the Network's potential growth or over a $1 per share increase in earnings due to cable alone have being factored into the price going forward. Why are you omitting these facts and sticking to a model that values any high p/e stock as a bad investment?
4. Finally, what are your projections going forward for subscriber count, OIBDA, EPS and other key financial metrics used in evaluating whether a stock is a good investment going forward? It seems there was very little analysis other than what other peoples projections are. Just looking at EPS the analyst have been wrong for 5 straight quarters as WWE surprised.
Appreciate your feedback,
Steve
Edward appreciate the feedback and definitely less frustrated. To date on the Network they have only picked the low laying fruit. Barrios the other day in the Needham investor presentation stated they will start drilling down more specifically within each country as they see what's working.
As far as the movies, they have done very low budget movies. They want to keep the revenue stream from the movies separate from the Network. It's not been profitable and to include them on the Network will remove any incentive from fans going out and buying them and increase the losses. As a part of the overall franchise this is one of the smallest. Hopefully with increased sub count, more fans buy the movies.
Hope that helps,
Steve
Dakota nicely written article. Barrios on his last investor presentation suggested India's pricing for the service might have to lowered to compete with lower prices people of that country pay for other online services. There will be obstacles in the way, but the positive growing metrics and constantly beating Wall Streets projections going forward provide a strong base for the stock to appreciate.
Dante anyone who follows WWE knows about the talent pool in NXT. You've posted some of the same old arguments on my articles. Your take is like the transition from the horse and buggy to the auto. It's all about technology.
Good thing for us long term investors is more and more positive articles are being written about WWE than ever before. This one was nicely written and hit a lot of key points going forward.
Trevor nicely written article. Short term there will be bumps in the road and on Barrios latest presentation he toned things down a bit. Also, he pointed out that the Company hired 5 data scientists to study trends and analyse what's working. He then pointed out that Netflix at 15 months after streaming began was at 40% of where they are now. This is relevant in that WWE 15 months in is at 40% of where they want to go (3 million). I still feel after purchasing the stock last summer it's the Law of Large Numbers that will ultimately prevail. Too many people worldwide that like this form of entertainment, however, nothing is built in a day.
Dante read your writings for awhile. Are you short the stock?
Vandalizer not much of a reader other than financial. But 'Field of Dreams' is my all-time favorite movie.
Enjoyed our conversation.
Thanks,
Steve
Players can take advantages of what's available....if it's legally prescribed and not to enhance performance. Corked bats were more limited than steroid use. Humidors benefited all playing. Steroids benefited cheaters. Baseball is not scripted and wrestling is. Big difference. I enjoy wrestling as you see great athletes with Three Stooges scripts. Perfect combination for me especially because the Red Sox claim to have won three WS since 2000. In my mind they haven't won since 1918. One day, if I live long enough, I will write a book about how the sport was destroyed by all those involved in promoting cheating.
Vandalizer your article link didn't open correctly.
I'm set in my ways on baseball. We can go on forever disputing levels of cheating. When teams like the Red Sox have trainers instructing players on how to inject roids, there is something grossly wrong with that. The playing field was more level prior to the Bash Brothers. There a reason why from the late 90's on they call it the Steroid Era. Whitney Ford might have scuffed the ball. Gaylord Perry added substances. But bottom line it wasn't something external they put in their bodies that made them better.
Appreciate the back and forth.
Vandalizer I'm a numbers freak. Growing up collecting baseball cards I was always turning them over to look at the stats. Back in the day it was uppers, coffee and alcohol and not performance enhancing drugs. Much different in my mind as it was obvious with Canesco and McGuire something had changed. It wasn't for the better either. I'm old school and will remain that until the day I die. My perspective probably matches kids raised in the 50's and 60's.
StockFlipper your insights are right on. It is a contradiction. In my mind any World Series winner since the late 1990's cheated. Roger Maris holds the single home run record. Henry Aaron holds the all time home run record. The cheaters destroyed the numbers of the sport and I'm all about numbers. Plus I hate the Red Sox and they haven't won a real World Series since 1918. I was there at the Angel-Red Sox 5th game in 1986. Dave Henderson home run went right over my head in the left field pavilion.
I don't condone drug use, but Wrestling records are for the most part meaningless and I still love the Three Stooges. It's all about entertainment now.
StockFlipper not until last summer when I invested in the Company did I subscribe. Strange thing was that I was a big baseball fan until the steroid ERA. Ruined the game for me as I'm a numbers person and the records mattered. With WWE I find it extremely entertaining and records (other than the Undertaker's streak) mean little. Quite a stretch going from a baseball purist to a fan of WWE.
Very good call for Barrios with J.P. Morgan. He seemed a bit more at ease and gave some new detail as to what management is looking at as far as growing the Network. Liked the new info on how they pick NXT cities to perform in.
Not really crazy about the late release Friday on the Studio side as it seems management is putting the cart before the horse. The Studio in the past has been a minor cash drain. Hopefully this doesn't set it up to be a major one as on the movie making side WWE has had little success. It would have made more sense in growing the Network and then spending on this part.
Also, with Barrios speaking Wednesday, it seems the stock is manipulated down on the days he speaks and it's not because he is saying anything new. I'm going to put a Instablog article after this speaking event as I think WWE stock, as one of the readers of my articles, is manipulated short term especially because their are only two known fundamentals. The first being the increase in cable contracts to 2018 that could give WWE as much as $1.00/share bottom line. The second is that the Network is no longer a drain on capital going forward. It's these two key factors that are establishing a bottom on the stock.
Great analysis Atticus. I think no one really knows where the sub count will peak out at now as it's way too soon to tell. Once the model inverts and subs start going down YOY that's when a red flag should be waived as to future growth. Unfortunately, management has little credibility with the Street with the less said being best. Management seems to miss what a lot of us see. Your right too that if they ever start getting the message right, in the short term it will hurt them. Longer term the truth is the truth and the Street will view this favorably.
AP only disagree because the hardcore wrestling fan will subscribe to the Network. No one is looking at Netflix numbers as the Network numbers. WWE has a large niche following around the world, but Netflix has over 60 million subs and is still expanding abroad. The point of any comparison to Netflix is the streaming subscription count was built over a number of years. There is no other online model to compare the Network's growth to other than Netflix. The WWE sub count, despite all that the naysayers put out there, is growing and not going backwards when YOY comparisons are made.
A new metric, and I'm about to research it, is that if the Network currently attracts about 1,000,000 subs in the US (almost 24% of the average viewership of Raw-3.8 mil), how does that translate to potential foreign subs relative to Raw viewership. Obviously the ratio will be lower, however, this is more important than WWE management's numbers on hardcore fans around the world and potential sub counts.
I found an interesting article from January 2007 from the N.Y. Times. Netflix's obituary was being written as they were about to start their streaming business. In the article, it stated that when investors were told that Netflix would invest $40 million in this new unproven venture, the stock dropped to about $22/share. Again the comparison is not the Netflix sub base versus the Network. Big difference from 60 million subs to the 2 million that is within the reach of WWE and elevates the Company to a different level.
Vandalizer the only comparison to Netflix was the fraction of subs that Netflix has for the Network to be successful. Recognizing the difference in products, because the Network has limited interest, we're not looking at Netflix numbers. Also, both are streaming sub models. There still isn't much out there to compare the Network to that leaves any comparison difficult to make. Additionally, all subscription models, take a number of years to build a base until the counts level off.
Also, PPV's for WM exceeded my forecast by almost 100K hitting 259,000. WWE in now getting about 25% of the Raw viewership total as subs through 3/31.
Vandalizer are you a subscriber? Just curious, as I've viewed much improved content since I subscribed last August.
Vandalizer it's not because the metrics are bad, it's because they are stuck in the old methods of reporting. Management has been very consistent in when they report numbers with good numbers coming out before any quarterly release. The fall out, based on Barrios OIBDA calculations starting at 1 million subs for the second quarter, indicate that they have at least 1.1 million subs starting in April. So if they had a 200,000 fall off in subs as of April 1st is this terrible? How many of those are buyers who would never have purchased a PPV? Barrios had to leave a cushion in the second quarter in case there is more fall off. Not that this is a number to jump up and down about, but it shows the model is working as it attracts more subs over time. No subscription model hits its peak at inception.
Also as Raw draws from 3.6 to 3.8 million, the U.S. sub count was over 1.1 million (assuming no foreign subs in that amount) at the close of the quarter. When you look at where the Network needs to be down the road, we're talking about 2 million subs to be extremely profitable. That is a fraction of the Netflix subscriber base. Hopefully by 2017 they can get there. Time will tell.
Thanks for your input.
Thanks Insider. Your remarks add to why the Network will most likely be a success despite management feeble attempt to make the numbers more transparent and tell an accurate story.
As far as the Studios, I think as they build the base of Network subs it feds into the other ventures. Web store sales, purchases of movies and attendance at events, especially NXT, increase. With extended global reach it's like a snowball going downhill, getting bigger and consuming more in its path. Once they reach a sustainable level of profitable on the Network, it would make sense for the Studio to develop more original content. What management is doing now is adding content at a low cost. Studio productions will be more expensive and are probably part of the bigger picture down the road.