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World Wrestling Banks on Strategic Deals & Subscriber Growth

Zacks Equity Research

World Wrestling Entertainment, Inc. WWE is gaining from its solid focus on increasing original content, subscriber growth, rise in TV rights fees and monetization of video content across digital and direct-to-consumer (DTC) platforms. Further, the company is on track with its strategic initiatives.

Backed by these factors, WWE delivered sturdy fourth-quarter 2018 results, wherein both the top and bottom line grew year over year and also surpassed the Zacks Consensus Estimate. This marked the second straight quarter of positive earnings surprise. We note that the stock has gained approximately 6% since the announcement of its quarterly results. (Read: World Wrestling Q4 Earnings & Revenues Beat, Up Y/Y)

Moreover, a glance at the company’s price performance shows that it has outperformed the industry in a year’s time. Shares of this Stamford, CT-based company have rallied more than 100% against the industry’s 0.7% decline.

Let’s delve deeper into the major factors that have been driving this Zacks Rank #2 (Buy) stock’s performance.

Strategic Deals to Increase Revenues

Recently, WWE announced the extension of its existing partnership with Mars. Per the deal, two famous brands of Mars — SNICKERS and SKITTLES — will obtain prominence and customer engagement across WWE’s global platforms. Backed by this development, WWE Network will continue to provide live streaming benefits to the SNICKERS partnered event, WrestleMania — one of the world’s largest sports and entertainment events. Further, WWE will promote the SNICKERS campaign of ‘You’re Not You When You’re Hungry’ in a customized manner across some of its flagship TV shows. SNICKERS has also come up with five limited edition Hunger Bars in collaboration with WWE, with catchphrases based on WrestleMania stars. As part of the extended partnership, SKITTLES will continue to partner with WWE’s event — Hell in a Cell — which will be aired in September 2019.

Prior to this, WWE extended its existing partnership with J SPORTS into its 22nd year with a new deal to broadcast flagship shows, Raw and SmackDown, live in Japan. Also, the company extended its partnership with SKY into its 19th year to continue broadcasting WWE programming in New Zealand.

These apart, WWE had earlier announced multi-year deals with Fox Sports and USA Network for its flagship programs. These five-year deals for the U.S. distribution of WWE programs will be effective Oct 1, 2019. Per the terms of the agreements, USA Network will continue to air Raw, while SmackDown will be broadcasted on Fridays on the Fox broadcast network.

According to management, these strategic deals will improve the average annual value of WWE’s U.S. distribution to 3.6 times of the contract with NBC Universal. Earlier, management had stated that these agreements are likely to bump up revenues from $311 million in 2019 to $462 million in 2021. For 2019, WWE expects adjusted OIBDA of minimum $200 million, assuming substantial revenue growth from the latest U.S. deals.

Subscriber Growth

In the fourth quarter of 2018, WWE’s number of average paid subscribers climbed 7% year over year to approximately 1.59 million. During 2018, digital video views surged 57% to 31.4 billion, while hours consumed soared 77% to 1.2 billion across digital and social media platforms. Additionally, core content rights fees jumped 12%.

Wrapping Up

Moving ahead, the company will continue banking on WWE’s content distribution agreement to expand subscriber base. Penetrating its reach in television, WWE witnessed the third fascinating season of Total Bellas; developed a new series — Miz & Mrs. (premiered on Jul 24, 2018); premiered the eighth season of Total Divas, and launched new weekly series — NXT UK.

However, fall in ticket sales during live events, drop in number of live events and rising costs at WWE Network are worrisome.

Nevertheless, we expect the aforementioned strategic endeavors to offset minor hurdles and help boost the company’s performance. For 2019, management anticipates attaining record revenues of about $1 billion.

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