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World Wrestling (WWE) Stock Down Despite Q3 Earnings Beat

Zacks Equity Research

Shares of World Wrestling Entertainment, Inc. WWE tumbled more than 15% during the trading session on Oct 31, in spite of the company reporting an earnings beat in the third quarter of 2019. We note that the company’s lower-than-expected revenues and a downbeat adjusted OIBDA view for 2019 were not well perceived by investors. Also, both the top and bottom lines came below the prior-year period reported numbers.

We note that shares of this Zacks Rank #3 (Hold) company have slumped 19.2% compared with the industry’s decline of 4.4% in the past three months.

Management cited that the delay in concluding an earlier contemplated accord in the MENA region and the impact of increased investment to support content creation compelled it to revisit OIBDA outlook. The company now envisions adjusted OIBDA in the range of $180-$190 million, down from prior forecast of at least $200 million. The company had reported adjusted OIBDA of $178.9 million in 2018.

Nonetheless, management expects significant revenue growth in the final quarter of 2019, courtesy of new U.S. content distribution agreements. A reflection of the same is likely to be visible in fourth-quarter adjusted OIBDA. Management estimates adjusted OIBDA between $108 million and $118 million for the quarter, which is considerably up from $64.4 million reported in the year-ago period.

Q3 in Detail

This integrated media and entertainment company reported earnings of 6 cents a share against the Zacks Consensus Estimate of a loss of 1 cent. The quarterly earnings also showcased a sharp fall from prior-year adjusted figure of 35 cents a share. The company’s bottom line was impacted by lower net revenues, increased operating costs and higher interest expense.

WWE’s revenues of $186.3 million fell short of the Zacks Consensus Estimate of $187.7 million, marking the third consecutive miss. Further, the top line fell 1% from the prior-year reported figure of $188.4 million. Management pointed that increased revenue from the Media segment was offset by lower revenues from Live Events and Consumer Products business segments.

Nevertheless, the company’s effort to focus on increasing original content production, localization and strategic initiatives, and digitization and international development bode well.

Total adjusted OIBDA came in at $25.4 million, exceeding the company’s guided range of $17-$22 million. However, the metric fell sharply from adjusted OIBDA of $35.8 million reported in the year-ago quarter. Meanwhile, adjusted OIBDA margin for this Zacks Rank #3 (Hold) company contracted to 14% from 19% in the prior-year period.

Definitely, 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. Further, the company is increasing the monetization of WWE content worldwide. The company successfully debuted Friday Night SmackDown on Fox Broadcast and NXT on USA Network.

World Wrestling Entertainment, Inc. Price, Consensus and EPS Surprise
 

World Wrestling Entertainment, Inc. Price, Consensus and EPS Surprise

World Wrestling Entertainment, Inc. price-consensus-eps-surprise-chart | World Wrestling Entertainment, Inc. Quote

Segmental Details

Media Division: Revenues from the Media division increased 3% to $146.1 million owing to higher core content rights fees, comprising license fees from the distribution of flagship programs Raw and SmackDown ,and the timing and performance of WWE Studios’ portfolio of releases. This was partly offset by fall in WWE Network subscription revenues. We note that Network revenue declined 11%, while advertising and sponsorship remained flat year over year. On the contrary, core content rights fees jumped 10%.

The number of average paid subscribers fell 9% year over year to approximately 1.51 million. Management now envisions average paid subscribers of approximately 1.43 million for the fourth quarter, reflecting a decline of 10% from the year-ago period.

Live Events: Revenues from Live Events came in at $23.2 million, down 13% year over year on account of fall in ticket sales at North America events, thanks to fewer events and weaker performance.

A total of 74 events (excluding NXT) took place in the quarter — 67 in North America and seven in international markets. In the prior-year quarter, there were 90 events of which 86 were held in North America and four in international markets.

North American ticket sales fell $4.1 million to $18.3 million. The average ticket price increased 6% to $56.64. However, lower attendance and 19 less events impacted the results. International ticket sales remained flat at $2.3 million. Management pointed that staging of three additional events was offset by fall in average attendance and average ticket price.

Consumer Products Division: The segment’s revenues came in at $17 million, down 13% year over year thanks to fall in product sales across distribution platforms, comprising the e-commerce site, WWE Shop, live event venues and licensing agreements. Staging of fewer events contributed to decline in sales of merchandise at live event venues.

Other Financial Details

WWE ended the quarter with cash and cash equivalents of $76.5 million, long-term debt of $22.2 million and shareholders’ equity of $293 million.

Key Picks

AMC Networks AMCX, a Zacks Rank #1 (Strong Buy) company, delivered an average positive earnings surprise of 23.9% in the trailing four quarters. You can see the complete list of today’s Zacks #1 Rank stocks here.

Discovery, Inc. DISCA has a long-term earnings growth rate of 19.2% with a Zacks Rank #2 (Buy).

News Corporation’s NWSA bottom line has outperformed the Zacks Consensus Estimate by a wide margin in the trailing four quarters. It carries a Zacks Rank #2.

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