It has been about a month since the last earnings report for World Wrestling Entertainment (WWE). Shares have added about 0.5% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is WWE due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
World Wrestling Q4 Earnings & Revenues Beat, Up Y-o-Y
World Wrestling Entertainment, Inc. delivered second straight quarter of positive earnings surprise, when it reported fourth-quarter 2018 results. Net revenues also came ahead of the Zacks Consensus Estimate after missing the same in the preceding quarter. Notably, both the top and bottom lines improved year over year. 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.
This integrated media and entertainment company delivered adjusted earnings of 44 cents a share that surpassed the Zacks Consensus Estimate of 32 cents and surged considerably from 7 cents reported in the year-ago period.
WWE’s revenues of $272.5 million surged 29% and came above the Zacks Consensus Estimate of $252.9 million. Management pointed that top line benefited from increased monetization of content and favorable impact of the adoption of the new FASB standard for revenue recognition (ASC Topic 606) on licensing revenue. For 2019, management anticipates to attain record revenue of approximately $1 billion.
Total adjusted OBIDA advanced 57% to $64.4 million during the quarter, whereas adjusted OBIDA margin expanded roughly 500 basis points to 24%. Adjusted OBIDA surpassed management’s earlier provided guidance range of $45-$55 million.
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.
The company anticipates first quarter adjusted OIBDA in the band $9-$14 million. Management hinted that the said range as well as the expected performance through the third quarter, reflects year-over-year declines. The company 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.
Media Division: Revenues from the Media division soared 40% to $205.3 million owing to the distribution of certain live in-ring programming content in international markets. Notably, higher core content rights fees, including license fees related to the Raw and SmackDown, increased advertising and sponsorship, and growth at WWE Network contributed to the segment revenue. We note that revenues from advertising and sponsorship grew 40%, core content rights fees jumped 12%, while Network revenue rose 4% during the quarter.
The number of average paid subscribers climbed 7% year over year in the quarter to approximately 1.59 million. Management now envisions average paid subscribers of approximately 1.59 million for the first quarter of 2019. 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.
Live Events: Revenues from Live Events came in at $34.4 million, almost flat year-over-year. The company highlighted that positive impact of large-scale international events, comprising Crown Jewel and Super Show-Down, was offset by the timing and ticket sales of events globally.
A total of 87 events (excluding NXT) took place in the quarter — 64 in North America and 23 in international markets. In the prior-year quarter, there were 101 events, of which 68 were held in North America and 33 in international markets. North American ticket sales fell $1.1 million to $19.7 million on account of four less events and a 7% drop in average attendance to 5,000. The average ticket price of $57.75 was higher 6%. International ticket sales plunged around 49% to $6.5 million due to 12% fall in average ticket price to $64.93 and 10 less events. This was partly offset by 33% jump in average attendance to 6,900.
Consumer Products Division: The segment’s revenues came in at $32.8 million, up 9% year over year owing to the adoption of a new FASB standard (ASC Topic 606). This positively impacted the licensing revenue by $8.1 million. However, fall in sales of merchandise at the company’s e-commerce site, WWE Shop, as well as lower royalties from the sale of toy products negatively impacted the segment revenue.
Other Financial Details
WWE ended the quarter with cash and cash equivalents of $167.5 million, long-term debt of $25.7 million and shareholders’ equity of $316.2 million. In the quarter, the company generated free cash flow of $54.3 million. Management projects capital expenditures to be in the band of $70-$90 million for 2019 with continued spending in 2020 above the historic range of about 4-7% of revenue. The company also announced share buyback program of up to $500 million.
How Have Estimates Been Moving Since Then?
Fresh estimates followed a downward path over the past two months. The consensus estimate has shifted -103.03% due to these changes.
At this time, WWE has a strong Growth Score of A, though it is lagging a bit on the Momentum Score front 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.
WWE has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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