Netflix gives TKO Group a stranglehold, Roth says

Following the announcement of a deal with Netflix, Roth MKM analyst Eric Handler remains bullish on TKO Group Holdings (TKO Group Holdings Stock Quote, Chart, News, Analysts, Financials NYSE:TKO).

On January 23, TKO announced that it had struck a deal with Netflix to host all the company’s WWE shows and specials.

“This deal is transformative,” said TKO president Mark Shapiro. “It marries the can’t-miss WWE product with Netflix’s extraordinary global reach and locks in significant and predictable economics for many years. Our partnership fundamentally alters and strengthens the media landscape, dramatically expands the reach of WWE, and brings weekly live appointment viewing to Netflix.”

Handler says this development is an unambiguous positive.

“We positively view WWE’s 10-year, $5bn+ global rights deal with Netflix,” the analyst said. “In our opinion, although there are many moving parts to the Netflix deal, financial terms appear largely in line with our projections. More importantly, this news removes a share overhang (evidenced by a ~16% increase in TKO shares vs. a 29bps increase in the S&P 500) by easing concerns about a softening sports rights market. This event is transformative for WWE, which should benefit from Netflix’s global marketing capabilities, scale and reach.”

In a research update to clients January 24, Handler maintained his “Buy” rating and price target of $112.00 on TKO.

The analyst thinks TKO will generate EBITDA of $1.12-billion on revenue of $2.61-billion in fiscal 2023. He expects those numbers will improve to EBITDA of $1.22-billion on a topline of $2.77-billion in fiscal 2024.

Handler says Netflix gives TKO much more than money.

“Moving to streaming from linear TV for Raw in the U.S. is a major, but highly logical, step for WWE given the secular shifts across the media landscape and the shrinking linear programming bundle,” he added. “Netflix ended 2023 with 80mn paid memberships in the U.S. and Canada (+8% y/y) and more than 180mn paid memberships across its international markets (+15% y/y). The gradual international shift of all WWE programs to Netflix will broaden WWE’s exposure while providing the ability to create a much more consistent marketing message. Also, Netflix intends to utilize WWE’s IP/characters to create “shoulder programming” which includes various types of non-scripted, out of the ring content. We imagine Netflix could broaden the global fan base for WWE as it did for Formula 1 with its Drive to Survive documentary series.”