Netflix vs. WWE: Who Has The Edge?

by Trefis Team
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Netflix’s stock (NASDAQ: NFLX) is up by about 30% so far in 2020, whereas World Wrestling Entertainment stock (NYSE: WWE) is down by 30%. If we compare the stock price trends for these two companies over the years, we see that Netflix’s stock price growth of 246% from $124 at the end of 2017 to $429 currently is much higher than WWE’s stock price rise of 150% from $18 to $45 during the same period. What is perplexing is that Netflix managed to completely outperform WWE despite seeing a 64% decline in its P/E multiple since 2016, compared to a 12% rise in WWE’s multiple. What has helped Netflix achieve such a superior performance vis-à-vis WWE? Our dashboard Netflix vs. WWE: Does The Stock Price Movement Make Sense? has the underlying numbers.

Netflix’s net income margin of 9.3% in 2019 is only slightly higher than WWE’s margin of 8% in 2019. Additionally, WWE had achieved a profit margin of 10.7% in 2018, a level Netflix has not touched yet. Thus, the primary factor contributing toward Netflix’s growth is the rise in Netflix revenue, which has increased by 130%, over 4x the revenue growth of 32% seen for WWE between 2016 and 2019. In terms of incremental revenue base, Netflix has added $11.4 billion in revenue between 2016 and 2019 whereas WWE has added only $231 million in revenues. Also, despite Netflix’s P/E multiple dropping sharply, it is still more than double that of WWE (101x vs. 45x).

 

Netflix and WWE Focus On Different Aspects Of The Entertainment Business

Let’s have a closer look at the core business prospects. Netflix is a completely online-based content platform with almost all of its revenue coming from subscription. In contrast, WWE’s revenue mix includes online as well as offline offerings. WWE’s media segment (subscription-based revenue for its network) contributes 77% of the company’s total revenue, whereas 23% comes from live events and sale of consumer products like merchandise (which in turn is mostly dependent on live events).

Netflix has been the biggest beneficiary with a boom in the streaming world over recent years, mainly due to the variety of its offerings in comparison to WWE which has limited content on its network. WWE has been struggling with increased competition and weak ratings for flagship programs such as “Raw” and “NXT.” However, as content goes more digital, the company has successfully increased the share of its network revenue from 67% in 2017 to 77% in 2019, which helped its stock register healthy growth until 2019.

The outbreak of the COVID-19 pandemic in 2020 has had the opposite effect on Netflix and WWE. The current crisis has helped Netflix’s stock with higher demand for its content as people are confined to their homes on account of the lockdown. On the contrary, WWE’s live events are being held without a live audience, which has affected 23% of its total revenues.

Netflix delivered first quarter global net subscriber additions of almost 15.8 million, as against the company’s own guidance of about 7 million new subscribers and almost 2x the Wall Street consensus of a little less than 8 million. However, this is likely to be a one-time bonanza as the management has hinted at subdued growth over the next few quarters.

If there are signs of abatement of the crisis by the end of Q2 2020, we could see a drop in subscribers for Netflix as the economy opens up and more people venture out of their homes. At the same time, post lockdown WWE’s live events and merchandise sales is expected to pick up while its media revenue will continue to remain strong following the October 2019 renewal of its key domestic distribution agreements of flagship programs – RAW and SmackDown. Thus, in a post-coronavirus scenario, WWE is likely to outperform Netflix.

As per Netflix valuation, Trefis has a fair price estimate of $385 for Netflix’s stock, which is lower than its current market price of $429. In contrast, WWE’s stock could possibly gain 40% post-coronavirus  based on WWE’s stock performance during the 2008 crisis.

 

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