Talk about a pile driver.
World Wrestling Entertainment's stock dropped 42 percent on Friday after details of its deal with NBCUniversal (parent company of CNBC) were released. Wall Street was expecting better terms for WWE. And, subscription numbers for WWE's new online streaming service continue adding to investors' disappointment.
According to WWE, the company could increase the annual value of its worldwide television agreements by $92 million to $200 million. Negotiations with NBCUniversal for such things as continuing "Monday Night Raw" on USA Network and "Friday Night Smackdown" on Syfy were expected by many analysts to double or triple WWE's TV rights fees. Instead, it's believed a 50 percent increase in fees was negotiated.
What's more, there is concern that WWE's online subscription service won't be profitable until a later-than-expected date. At the end of the most recent quarter, 670,000 people paid $9.95 per month for the service but the company said it will need more than twice that many subscribers before it breaks even from pay-per-view revenue it cannibalizes.
How WWE gets into people's homes may have sent the stock into the basement, but will it stay there indefinitely? Perhaps not, but it will be there a while, according to Ari Wald, head of technical analysis at Oppenheimer & Co.
"What the charts are telling me is we could have a lot of fun with the metaphors today," Wald said on CNBC's "Street Signs." "This stock got the ‘Stone Cold Stunner’ and I'm not touching it."
According to Wald, WWE's stock spent several months near a base at around $7.40 per share twice in the last decade and a half. In 2003, it stayed near there for about seven months while during this decade, it traded for roughly 13 months near that level.
"This is going to be a while until this stock turns it back around," said Wald. "I'm out for now. I'll check in six or 12 months. Until then, I'm avoiding it."
Portfolio manager Chad Morganlander of Stifel's Washington Crossing Advisors agrees with Wald's charts. His company owns shares of WWE in its portfolio.
"When you're explaining, you're losing," said Morganlander. "After reading the [WWE's] press release, they have a lot of explaining that they're doing here."
He said the company allowed expectations to reach levels it couldn't meet. While WWE's dividend yield is now 4.2 percent, Morganlander believes the company has to address its free cash flow or lack thereof; it showed a negative free cash flow of $35 million in the last 12 reported months, according to data from FactSet.
"They need to show that they can become free cash flow positive," said Morganlander. "If the stock got below $10 a share, as a value investor, I would start doing my homework on this company. But I would have to wait."
Morganlander added, "This is a ‘hold’ at best."
For more on the WWE, with Wald on the technicals and Morganlander on the fundamentals, watch the above video.
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