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About TKO

The story of how TKO Group Holdings came to be is a little complicated.

Instead of starting out like most companies, and being a small standalone entity and eventually growing into a larger and more prominent one, TKO was actually born out of a merger, with the renowned World Wrestling Entertainment (WWE) and the just as globally acclaimed Ultimate Fighting Championship (UFC) (which was owned by a parent company named Zuffa, founded and led by pioneers of the fight-night entertainment world, the Fertitta brothers and the unapologetically authentic Dana White), both becoming one in September 2023.

Per some of the general terms of the merger, the merger itself was arranged by the famed entertainment agency Endeavor Group Holdings, which per the terms, owns a slight majority stake in the newly formed TKO (51%), with WWE’s previous shareholders (the company is now admittedly private as a result of the deal) owning the remaining 49% stake.

The synergies for such a deal are fairly apparent, with TKO now being considered one of the strongest household brands in the live-event and sports industries, also benefiting in the sense that the new entity has a lot more marketing power at its disposal, and perhaps more importantly, more opportunities through which it can create both cost and revenue synergies through its global reach. Namely, perhaps the combined entity has constructed more streamlined operations, which is good for hewing down its outstanding liabilities, with the more obvious financial benefit being a slew of opportunities to grow revenues both live as well as in the digital realm. I’ll admit, I just threw around a good amount of names and divisions, so in the interest of simplicity, the moral of the story is that TKO, the company I will be analyzing today, is the current parent company of both the WWE and the UFC.

Diving into the meat and potatoes regarding how TKO actually generates revenues, the company makes a sizable chunk of its revenues through media and content distribution, primarily, obtaining sales through streaming its content through third-party platforms (think pay-per-view along with basic television). A few other main ways in which the company produces revenues is through hosting live events (fights, predominantly) and charging spectators a pretty penny to watch some people whale on each other, sponsorships from its corporate partners as well as through licensing its name and other bits and pieces of its content and likeness to strategic entities like video game developers, apparel companies and other brands.

The question as to whether or not this company is recession resistant is a bit of an initial toss up, but given my personal knowledge and experience with the company and its brands, I know for a fact that TKO has a substantial amount of brand power under its belt, and those that consume their content or engage with the brands in other ways tend to do it quite regularly, and you can never say that an avid follower of the WWE and/or UFC isn’t loyal. Of course, this naturally leads me to believe that TKO has some backbone and cushion when it comes to fighting recessionary pressures. In fact, one interesting way to think about it as the economy sours, many tend to become even more irrational with their budgeting and financial decisions, and with a recession in the air, folks, especially in lower-income stations stick to what makes them comforted and happy once again, and there is no question that both the WWE and UFC are intense nostalgia machines.

Don’t shoot the messenger.

At any rate, while I’d like to think I know this as nothing but fact, I’d rather resort to letting the company’s recent annual revenues and other pertinent financials do the talking, so let’s get right into TKO Group and its finances, with the aim of determining whether or not this two-for-one entity is worth its (heavy)weight as an investment for today, tomorrow, the next day, and, well, you get it.

TKO’s stock financials

TKO Group Holdings, according to its market capitalization, is a $21.76 billion entity with a share price of $127.52, no regular annually issued dividend offered at the moment nor a displayed price-to-earnings (P/E) ratio to be found, not lending myself or others a whole lot of mission critical insight, only that TKO’s executives might be working on achieving long-term, sustainable and consistent profitability, which, if they play their cards right, is likely to come in due time, but I feel it is fair to offer a smidge of rope since the merger is still fairly fresh and there are a ton of moving parts within each company individually, and putting them together in order to be rewarded with (net) profitability just might take some time.

This is also obviously cause for not paying out an annual dividend.

Pushing forward to the condition of the company’s balance sheet, TKO’s executives (including Dwayne Johnson, AKA “The Rock”) are steering the ship with just shy of $12.7 billion in terms of total assets and $8.6 billion in terms of total liabilities, which, when considering the fact that TKO is a large-scale media operator with a pronounced live-event division, sounds about right, and upon further review I take a lot of confidence in identifying that a large amount of the company’s liabilities are long-term.

In other words, it would be fairly tough for this company to go out of business anytime soon and all rational possibilities considered, I don’t mind TKO’s overall balance sheet structure one bit, especially given that it maintains a sufficiently higher amount of total assets than it does liabilities, again, in the context of its operational footprint.

Onto the state of the company’s income statement, the TKO Group has been steadily growing its revenues throughout each year between and during 2019 and 2023, forming a base of $960 million in 2019, $974 million in 2020, nearly $1.1 billion in 2021, a hair under $1.3 billion in 2022, leading all the way up to its latest reported revenue figure of $1.675 billion, per its report at the end of 2023.

There is a lot to be said about how the company’s revenues didn’t fall out of the sky during the 2019-2021 era, as this speaks to the very tangible promise of the company’s off-premise revenue streams, primarily its pay-per-view and streaming divisions, and the promise hardly ends there given the ever expanding sports streaming rights market and its current and projected robustness (that’s probably a word?), not to mention both WWE’s and the UFC’s upcoming key rights negotiations, occurring in early 2026 and late 2025, respectively.

It would be reasonable to preface these upcoming negotiations by saying that anything can happen, but what would be more reasonable is to presume that the values of both of these entities continue rising and the streaming and distribution values these entities bring to the table have more than likely gone up since its most prior talks. 

When it comes to the company’s cash flow statement, TKO’s total cash from operations during the same timeframe have experienced some mild fluctuation, but on the net, they’ve been moving in the right direction, ultimately spanning between a low of $122 million (2019) and a most recent high of $468 million in 2023. As of right now, while I deem long-term profitability to be of the essence for TKO, I am not going to get too hung up on it right now, as again, with the sheer size and scale of the merger and the company’s board of directors working on streamlining the combined entity day in and day out, there are a multitude of ways in which the company can shore up more cash through its operations, and it is more than anything just a matter of being patient, particularly when considering these enterprise’s histories and the seasoned executives at the helm.

TKO’s stock fundamentals

While still on the note of the company’s profitability, according to the figures shown on Charles Schwab’s platform, TKO Group Holdings’ net profit margin is slightly in the red, presently pegged at -3.65%, and given the figures I’ve seen come out of similar entertainment operators in previous stock analysis articles, it is nice to see that TKO is far from being far off from some of its more seasoned and established competitors in the live entertainment space.

Again, as when one is pondering potential investment ideas, one must always be looking towards the future, and on this primary basis, I am enthused more than anything with respect to the company’s long-term, future profitability profile, and thus not going to lose sleep over its current picture, even though it isn’t all that bad.

Should you buy TKO stock?

In referencing the company’s stock price (NYSE: TKO) chart alone, it is clear that the stock has gained some most deserved steam, with shares up around 40% over the last one year’s span of time alone, which is great for shareholders of the past, but not exactly music to a potential value-oriented investor’s ears in terms of relative valuation moving forward.

In putting all of these ingredients together, TKO Group Holdings’ balance sheet is in a strong position, its revenues have been growing at a handsome rate year-over-year (YOY), its cash flows have been just fine and when also considering the very real combined brand power and more importantly, negotiation chips to play, I really do like TKO’s stock, but in the interest of minimizing risk and not paying near tops, heightening my chances of incurring the eventual demise of selling towards a bottom, I deem it more prudent to wait on the sidelines until the company’s stock comes down a bit before potentially piling in, as there is a little too much optimism built into the stock, albeit largely merited.

This is exactly why I am lending this company’s stock a “hold” rating until further notice.

DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.

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