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Why Is WWE (WWE) Down 11.1% Since Last Earnings Report?

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It has been about a month since the last earnings report for World Wrestling Entertainment (WWE). Shares have lost about 11.1% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is WWE due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

World Wrestling Reports Q1 Loss, Revenues Fall Y/Y

World Wrestling Entertainment, Inc. reported wider-than-expected first-quarter 2019 loss per share. Net revenues also fell short of the Zacks Consensus Estimate after surpassing the same in the preceding quarter. We also note that both the top and bottom lines came below the prior-year period.

This integrated media and entertainment company delivered loss of 11 cents a share wider than the Zacks Consensus Estimate of loss of 2 cents. The company had reported earnings of 18 cents a share in the year-ago period. The company’s bottom line was negatively impacted by lower top line, higher operating expenses, increased marketing and selling expenses, rise in general and administrative expenses and higher interest expense.

WWE’s revenues of $182.4 million fell 2.8% year over year and also missed the Zacks Consensus Estimate of $199.2 million. Management pointed that the increased monetization of content as evident from the Media segment benefited the top line. However, this was offset by a fall in live event ticket revenue and lower merchandise sales.

Nevertheless, management continues to anticipate record revenue of approximately $1 billion for 2019. Clearly, the company’s effort to focus on increasing original content production, localization and strategic initiatives as well as digitization and international development bode well.

Total adjusted OBIDA came in at $12.4 million within the company’s guided range of $9-$14 million but fell sharply from adjusted OBIDA of $35.2 million reported in the year-ago quarter. Meanwhile, adjusted OBIDA margin contracted to 7% from 19% in the prior-year period.

Without any doubt management is strengthening and expanding WWE Network through creation of new content along with implementation of programs which will have higher customer attraction and retention power. Further, the introduction of new features, expansion of distribution platforms and foraying into new regions will aid the drive. The company is increasing the monetization of WWE content worldwide. With revenue expected to increase considerably courtesy of new U.S. distribution agreements, management is aiming to attain adjusted OIBDA of at least $200 million for 2019, up at least 12% from adjusted OIBDA of $178.9 million in 2018.

The company now anticipates second quarter adjusted OIBDA in the band $19-$24 million. Management had earlier hinted that the expected performance through the third quarter, reflects year-over-year declines. The company had informed that this is because increased content rights fees are likely to be offset by higher fixed costs. For the fourth quarter of 2019, management projects adjusted OIBDA of at least $100 million.

Segmental Details

Media Division: Revenues from the Media division increased 1.5% to $135.4 million owing to higher core content rights fees. This was partly offset by reduced advertising sales, primarily on the YouTube, and the unfavorable timing of advertising and sponsorship sales on other platforms. We note that core content rights fees jumped 4%, while Network revenue inched up 0.4% during the quarter. However, revenues from advertising and sponsorship fell 10.7%.

The number of average paid subscribers climbed 2% year over year to approximately 1.58 million. Management now envisions average paid subscribers of approximately 1.70 million for the second quarter of 2019, reflecting a decline of 5% from the year-ago period. During the quarter, digital video views surged 15% to 7.7 billion, while hours consumed soared 23% to 300 million across digital and social media platforms.

Live Events: Revenues from Live Events came in at $26.2 million, down 14.9% year over year on account of not so impressive performance of events in North America. The company witnessed fall in average attendance and also staged nine less events. The company highlighted that there were no Raw or SmackDown events in the international markets. North American ticket sales plunged 19.1% to $24.1 million. Average attendance dropped 11% to 4,800, while the average ticket price of $52.38 was almost flat year over year.

Consumer Products Division: The segment’s revenues came in at $20.8 million, down 11.5% year over year owing to fall in sales of merchandise at the company’s e-commerce site, WWE Shop and live-event venues.

Other Financial Details

WWE ended the quarter with cash and cash equivalents of $152.8 million, long-term debt of $24.4 million and shareholders’ equity of $313.1 million.

How Have Estimates Been Moving Since Then?

Fresh estimates followed a downward path over the past two months. The consensus estimate has shifted -102.78% due to these changes.

VGM Scores

Currently, WWE has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. However, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

WWE has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.



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