WWE: Ultimate SmackDown stockApril 3, 2014: 2:06 PM ET
The opinions expressed in this commentary are solely those of Paul R. La Monica. Other than Time Warner, the parent of CNNMoney, Abbott Laboratories and AbbVie, La Monica does not own positions in any individual stocks.
Quick! What's the hottest media tech stock of the past few months? Amazon? Netflix? Google?
Nope. Try World Wrestling Entertainment.
Shares of the WWE (WWE) have surged an astonishing 220% in the past year and are up more than 70% in 2014 alone.
Much of the excitement surrounding the stock has been about what this means for the future of the "sports entertainment" company.
The WWE historically has generated broadcasting revenue from its deals with TV networks -- such as Comcast's (CMCSA) USA and Syfy -- and through Pay-Per-View events such as this Sunday's WrestleMania 30 extravaganza in New Orleans.
(WrestleMania is the equivalent of the WWE's Super Bowl -- although the WWE no longer regularly uses Roman numerals to promote it like the NFL pompously does.)
But with the launch of the WWE Network in late February, the company is hoping to generate even more sales through a $9.99 per month subscription. Through the subscription -- which carries a six-month requirement -- users can watch all current WWE events ... including WrestleMania.
It's a bold move for the WWE since it takes the company out of the exclusive realm of cable TV (and may alienate cable and satellite providers in the process) and brings its programming to the more rapidly growing world of online video. The WWE also made the savvy decision to not bet on just one streaming video provider.
The WWE Network, in addition to being available on desktops and laptops at its own web site, can be viewed on apps through Apple (AAPL) TV, Microsoft's (MSFT) Xbox, Sony's (SNE) PlayStation, Amazon's Kindle Fire, Google Play and Roku.
The launch of the app is also a bet that more WWE fans would be willing to pay $9.99 every month instead of one-off splurges for big events. The cost to watch WrestleMania on Pay-Per-View is $59.95. The second tier of WWE Pay-Per-View specials tend to cost $44.95.
Just how many fans will sign up for the network? That remains to be seen. The company hasn't released figures yet. It is widely expected that there will be an announcement Monday about how many people watched WrestleMania on the app.
But investors are taking some money off the table the past few days. The stock was down about 2% Thursday following a 2% drop Wednesday. But the pullback makes sense when you consider that shares have surged as much as they have this year. Plus, the WWE soared 5% on Monday and 2.5% Tuesday.
So what's next for the stock, given all the recent volatility?
The valuation for WWE is higher than a Jimmy "Superfly" Snuka jump off the top of a steel cage. (My wrestling references are pretty much confined to the 1980s, which is when my little brother and I were young lads begging our parents to let us watch WrestleMania. Back then, it was still the WWF.)
All that punch aside, the company is expected to lose money this year and shares trade at 25 times 2015 earnings estimates. That seems a bit rich given that it's unclear the app will be a huge success.
But the WWE does have other things going for it.
Its movie studio, launched in 2002, finally seems to be clicking. It's still a small part of the overall business, but revenues from movies did grow 37% in 2013 as the company has diversified beyond action flicks featuring WWE wrestlers. Its biggest hit last year was "The Call" -- a thriller that starred Oscar winner Halle Berry.
The WWE is also doing a decent job of expanding its presence internationally. Revenue from Asia, Europe and Latin America rose 12% in the fourth quarter from the same period in 2012 while sales were flat year-over-year in North America. The WWE generated more than 26% of its total sales from outside North America in the quarter.
Yes, the WWE is a bit of an unconventional company. It takes risks that often don't pan out. Remember its ill-fated XFL, a failed attempt to compete with the NFL? What? You don't remember. Just Google "He Hate Me." (Or check out this positively ancient-looking story on CNNfn from 2000!)
But in other respects, the WWE is also a conservative company. It's amazingly enough a good bet for income-hungry investors. It pays a dividend that yields a respectable 1.6%.
Finally, there have also been some takeover rumors that have helped boost the stock lately.
The WWE's TV contract with Comcast's NBCUniversal ended in February. WWE shows still air on USA. But there was speculation last month that the WWE and AMC Networks (AMCX) have been in merger talks as a way for WWE to secure a new broadcast deal.
The rumors are -- for now -- just that. But I wouldn't discount them entirely. While it may seem odd to think that Triple H and John Cena could be owned by the same company that's responsible for Don Draper and Walter White, AMC does offer more than just critical darlings like "Mad Men" and "Breaking Bad."
AMC also airs several reality shows that could be a good fit with WWE content, such as "Comic Book Men," "Freakshow" and "Game of Arms." The latter is a show about professional arm wrestlers.
Now if that's not synergy, feel free to whack me upside the head with a folding chair.
When is "Cuban Twitter" going public? That stock might actually do better than $TWTR.—
Paul R. La Monica (@LaMonicaBuzz) April 03, 2014
But my Reader Comment of the Week winner one-upped me.
Well-played. My guess is that former NBA commissioner David Stern would probably short that stock just so he could continue to give the owner of the Dallas Mavericks a reason to complain.