TKO Group's NFLX deal is the knockout punch investors needed

photo of mobile phone with Neftflix logo and RAW logo in background

When appointing Dwayne "The Rock" Johnson to the board of directors was the second-best thing that happened, you know it was a good week for TKO Group Holdings, Inc. (NYSE: TKO).

On Tuesday, the parent company of mixed martial arts leader UFC and pro wrestling outfit WWE announced that Netflix Inc. (NASDAQ: NFLX) will be the new home of the weekly WWE Raw program starting in January 2025. The long-term deal will see WWE's flagship wrestling show move to streaming T.V. after airing on traditional cable for 31 years. Fittingly, the iconic Raw program helped launch Dwayne Johnson's career in 1996 when he went by the alias Rocky Maivia.

The powerful one-two news punch helped TKO gap up nearly 16% in record volume. An ensuing low-volume pullback has created a favorable entry point for an emerging media industry player. Formerly World Wrestling Entertainment, Inc., the premium sports and entertainment entity began trading under the TKO symbol in September 2023 through an agreement with majority owner Endeavor Group Holdings.

WWE's decision to tap out of the linear programming arena was long overdue, considering the consumer cord-cutting trend has been active for over a decade. To tag team with Netflix, however, is a heavyweight move that more than offsets the organization's reluctance to get out of the cable ring. Netflix remains the world's most popular streaming service, with 260 million paid subscribers. Inc's (NASDAQ: AMZN) Amazon Prime Video and The Walt Disney Company's (NYSE: DIS) Disney+ have closed the gap but don't have the same global reach as Netflix.

For WWE, the Netflix tie-up is especially valuable because it includes the U.S., Canada, the U.K. and Latin America, accounting for most of Netflix memberships. Plans to expand to additional countries and regions over time point to a lasting partnership that will likely pack a major revenue punch for TKO Group. Given the widespread popularity of WWE's Raw, SmackDown and NXT content (all of which are part of the deal), Netflix could also get a significant subscriber boost. 

Raw alone has over one billion social media followers. It is currently the top-rated show on the USA Network, where it attracts 17.5 million annual viewers and is particularly popular among 18 to 49-year-olds. The show's move to Netflix is a body slam to Comcast Co's. (NASDAQ: CMCSA) NBCUniversal, which owns the USA Network, but it was a unanimous victory for TKO Group.

What is TKO's marketing strategy?

Together, TKO Group's UFC and WWE assets reach over one billion households worldwide. They stage more than 350 live events throughout the year that draw an additional one million fans. The ongoing integration of UFC and WWE took another step forward earlier this month.

On January 4, TKO Group merged the global partnerships teams of its two crown jewels into a single sports marketing unit. The move is designed to make TKO more attractive to advertisers and brand partners through increased content and scale. UFC has partnered with several prominent consumer-facing businesses over the years, including Anheuser-Busch InBev (NYSE: BUD), Monster Energy Corporation (NASDAQ: MNST) and Jose Cuervo. WWE boasts a high-profile brand lineup of its own that includes PepsiCo Inc. (NASDAQ: PEP), Pizza Hut, Mattel Inc. (NASDAQ: MAT) and Applebee's.

Combining the marketing resources of UFC and WWE should make TKO a valuable partner for existing and new clients. Effective January 1 of this year, AB-InBev became the "Official Global Beer Partner of UFC," and Bud Light became the Official Beer of the UFC. Bud Light's renewed UFC sponsorship comes after a tumultuous 2023 when the nation's top beer brand faced a boycott for sponsoring transgender TikTok personality Dylan Mulvaney.

When does TKO report Q4 financials?

On Friday, TKO Group announced that it will report fourth quarter and 2023 financials after the closing bell on February 27. Management will hold a teleconference at 5:00 p.m. EST to discuss the results and provide a business update.

On November 8, 2023, TKO shares ran as high as $87.67 after the company posted third quarter numbers. Revenue increased 32% year-over-year to $449.1 million, with UFC accounting for almost 90% of total revenue. WWE's new Netflix deal should make it a bigger revenue contributor in 2024 and beyond, giving TKO two strong entertainment businesses.

After climbing as high as $95.92 on Tuesday, TKO finished the week at $86.54. The stock received bullish commentary from four different Wall Street analysts last week, all of whom gave it a Buy rating. Citi added TKO to its North America Focus List with a Street-high $125.00 price target, implying a 44% upside. Now that's something for growth investors to grapple with.

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