Even if you’re not a wrestling fan, TKO Group Holdings (NYSE:TKO) is a company to watch now. In the 2020s, making a switch to streaming from traditional television makes a lot of sense. So, while TKO Group’s financials haven’t always been perfect, I am bullish on TKO stock for the remainder of 2024.
TKO Group Holdings is best known as the parent company of wrestling event provider WWE. Hence, while you might not be familiar with the name TKO Group, you may have heard of events like WWE Raw and Smackdown.
The WWE Raw program is quite popular, drawing in 17.5 million unique viewers per year on the NBCUniversal-owned USA Network. Now, you might think it would be irrational for TKO Group Holdings to disrupt this apparently successful arrangement with a well-known cable television network. However, change can be a good thing sometimes, and the market seems to approve a major change that TKO Group just announced.
TKO Stock’s Roller Coaster
“Roller coaster” would be the best way to describe the trajectory of TKO stock last year. Give or take a few dollars, the stock made a complete round trip from $80 to $115 and back.
That’s a disappointing full-year performance when the major stock market indexes easily rode higher. It makes sense, though, when we examine TKO Group Holdings’ quarterly earnings.
After many consecutive profitable quarters, TKO Group Holdings suddenly posted an earnings loss of $0.26 per share in 2023’s third quarter. That’s a tough pill to swallow since Wall Street had expected TKO Group to report a positive earnings result of $0.55 per share.
It takes a little bit of investigating to find out what happened. TKO Group Holdings’ revenue actually increased to $449.058 million in Q3 2023 versus $340.669 million in the year-earlier quarter. However, TKO Group’s total operating expenses doubled from $171.063 million in Q3 2022 to $355.221 million in 2023’s third quarter; this included a big jump in selling, general, and administrative expenses.
In other words, TKO Group Holdings doesn’t have a problem earning revenue; the company just needs to contain its costs. Going forward, investors should keep an eye out to see if TKO Group’s management gets proactive about reducing the company’s expenditures.
The Forward-Thinking Move
As I mentioned earlier, TKO Group Holdings could have played it safe by keeping WWE Raw on cable television. Yet, change is sometimes necessary when market trends change. Consequently, TKO Group made a move that might surprise you, but it’s forward-thinking and actually makes perfect sense.
Here’s the scoop. WWE Raw is leaving linear television (i.e., network and cable TV) and coming to the king of streaming, Netflix (NASDAQ:NFLX). According to the official press release, starting in January of 2025, Netflix “will be the exclusive new home of Raw in the U.S., Canada, U.K. and Latin America, among other territories, with additional countries and regions to be added over time.”
It’s not just about WWE Raw, by the way. All WWE shows and specials outside the U.S., as available, will come to Netflix. These include not only Raw but also SmackDown, NXT, WrestleMania, SummerSlam, and Royal Rumble.
TKO Group Holdings TKO President and COO Mark Shapiro called the deal with Netflix “transformative,” and the market seems to concur. In the wake of this announcement, TKO stock gained 15.8% today.
I’d say the Netflix deal isn’t just “transformative.” It’s also smart and forward-thinking. If TKO Group Holdings wants to capture the attention of young generations of wrestling fans, staying on linear television wouldn’t be the right move. Streaming is the future of video entertainment, and while change can be challenging, TKO Group is making the right change at the right time.
Analysts’ Take on TKO Stock
On TipRanks, TKO comes in as a Strong Buy based on three Buys and one Hold rating assigned by analysts in the past three months. The average TKO Group Holdings price target is $105, implying 17.15% upside potential.
If you’re wondering which analyst you should follow if you want to buy and sell TKO stock, the most profitable analyst covering the stock (on a one-year timeframe) is Curry Baker of Guggenheim, with an average return of 35.71% per rating and a 63% success rate. Click on the image below to learn more.
Conclusion: Should You Consider TKO Stock?
TKO Group Holdings’ financials haven’t been ideal. Plus, TKO Group stock is prone to volatility. The billion-dollar question is whether the company will get serious about keeping its expenditures down in 2024.
That’s something to keep tabs on in the coming quarters. In the meantime, investors should applaud TKO Group Holdings for making a smart move by shifting its focus to streaming. Therefore, even after its recent rally, I’m still considering TKO stock, as the Netflix deal bodes well for all stakeholders.
