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Why WWE's stock is in a smackdown

World Wrestling Entertainment (WWE) would have done well to heed its own professional wrestling stars. If you're going to hype yourself, it's best to follow up with some real muscle.

WWE shares have taken a bruising since Thursday, losing 45 percent of their value through the close of trading on Monday. Shares slipped again on Tuesday, declining another 0.27 percent.

In the case of the WWE's sudden market decline, the company was, in a way, the architect of its own smackdown. Chief Executive Vince McMahon had been touting its new 24-hour streaming service called WWE Network, as well as predicting that the company could double the rights fees it collects from TV networks that air its productions.

McMahon even told one analyst in 2013 that he'd let him "put a hammerlock on me" if he failed to double the rights fees.

Well, McMahon is due to feel the pain of a hammerlock.

On Thursday, WWE said NBC Universal, which airs WWE programming on its USA Network and Syfy channels, renewed its content deal, but at a reported $150 million per year, or an increase of 50 percent. That's a fairly healthy jump, but it's far short of the megadeal McMahon had promised last year.

Investors are also concerned about the growth prospects for WWE's new streaming service, which debuted in February and which the company described in its annual report as "a key pillar of our plan to drive significant earnings growth." Earlier this month, WWE announced that the service has signed up almost 670,000 customers. But on Thursday it disclosed it would need as many as 1.4 million subscribers to replace earnings lost from pay-per-view services.

"The issue here is that investors do not have a good understanding on the path to profitability," Paul Sweeney, a Bloomberg Industries analyst, told Bloomberg.

The two issues -- the disappointing cable deal and the new WWE Network -- may be linked. That's because the new streaming network means WWE is competing more directly with the cable networks paying for its high-rated shows, such as "Friday Night Smackdown" on Syfy and "Monday Night Raw" on USA. That might have hurt its ability to negotiate the new NBC Universal contract, officials said on a Monday conference call.

WWE declined to comment on the stock tumble. It pointed to a statement McMahon gave The Wall Street Journal about investor reaction to its subscriber and cable renewals: "There should be no confusion on Wall Street as it is extraordinary to have reached more than 660,000 WWE Network subscribers only 42 days after launch, putting us on track to reach 1 million subscribers by the end of the year," McMahon said. "We feel good about nearly doubling the value of our four largest TV deals around the world."

Investors may be waking up to another potential problem with WWE's business model: whether it's feasible for WWE Network to reach what it says is a "potential" customer base of as many as 3 million customers. Given that the service costs $9.99 per month, or about $120 per year, that's asking a relatively hefty amount, given that most consumers already pay an average of $64.41 per month for basic cable service.

Plus, those cable customers can already watch "Raw" or "Smackdown" with their monthly cable subscription, so it might be a hard sell to convince them to shell out another $10 per month for a wrestling-only service, especially given the demographics of wrestling fans. About half of WWE viewers earn less than $50,000 per year, while that's true for just one-third of sports fans overall.

Still, WWE's shares might be down for the count at the moment, but maybe soon investors, just like wrestling fans, will love a good underdog story.

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