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World Wrestling (WWE) Q3 Earnings Beat Estimates, Surge Y/Y

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World Wrestling Entertainment, Inc. (WWE - Free Report) continued with its positive earnings surprise streak in third-quarter 2020. However, the top line of this integrated media and entertainment company fell short of the Zacks Consensus Estimate for the second quarter in row. Nonetheless, both the top and the bottom lines registered year-over-year improvement.

Management informed that the coronavirus outbreak and related government mandates to cancel, postpone or relocate its live events since mid-March have hurt the company’s business. Nevertheless, it has been undertaking necessary steps such as short-term cost reductions and cash flow improvement actions to address the challenges related to the pandemic. Additionally, the company has been making prudent investments to better engage with its target audience and enhance content production value.

Let’s Take an Insight

This Stamford, CT-based company reported third-quarter adjusted earnings of 56 cents a share that comfortably surpassed the Zacks Consensus Estimate of 35 cents. Markedly, this was the sixth straight beat. The quarterly earnings also exhibited a sharp improvement from 6 cents a share reported in the prior-year period. The company’s bottom line was favorably impacted by higher net revenues, lower operating costs, and decline in marketing and selling expenses.

However, management forecast incremental expenses of $40-$45 million in the fourth quarter versus the third quarter. Of these, $18 million relates to production incentives (recognized in the third quarter) and the remaining $22-$27 million relates to the ongoing incremental production expenses associated with the creation of the WWE Thunderdome and incremental personnel expenses with respect to employees returning from furlough. The company notified that both these expenses are expected to continue in the next year as well.

Coming to the third quarter, we note that WWE’s net revenues of $221.6 million increased 19% year over year but lagged the Zacks Consensus Estimate of $223.9 million. It is worth mentioning that revenues from Media and Consumer Products segments helped offset lower revenues from Live Events.

Undeniably, management is strengthening and expanding WWE Network through creation of new content and implementation of programs that will have higher customer attraction and retention power. Vince McMahon, chairman & CEO said, "We continue to adapt our business, as demonstrated by the creation of WWE ThunderDome, focusing on increasing audience interaction and engagement to support the value of our content globally."

A Look into Margins

Adjusted operating income came in at $68.9 million, up from $6.4 million reported in the year-ago quarter. This year-over-year increase can primarily be attributed to higher revenues on account of growth in core content rights fees, decrease in event-related production expenses and short-term cost reductions undertaken due to the pandemic. Markedly, adjusted operating margin expanded to 31.1% from 3.4% in the year-ago period.

Total adjusted OIBDA came in at $84.3 million, substantially up from $25.4 million in the year-ago period. Meanwhile, adjusted OIBDA margin increased to 38% from 13.6% in the prior-year quarter.

Segmental Details

Media Division: Revenues from the Media division surged 38% to $201 million owing to rise in domestic core content rights fees for flagship programs — Raw and SmackDown, increase in WWE Network subscription revenues and higher sales of advertising and sponsorship across platforms. These were partly offset by the unfavorable timing of episodic series for programs, such as Total Divas and Miz & Mrs.

Notably, core content rights fees advanced 83%. While advertising and sponsorship revenues grew 21%, network revenues increased 8%. However, we note that other media revenues plunged to $2.7 million during the quarter under review from $14.7 million in the year-ago period. WWE Network’s average paid subscribers were 1.6 million, reflecting an increase of 6%. Digital video views rose 3% to 9.2 billion, and hours consumed jumped 3% to 342 million across digital and social media platforms.

Live Events: Revenues from Live Events came in at $0.7 million, sharply down from $23.2 million in the year-ago period owing to the absence of live events and a corresponding fall in ticket sales in the North American and international markets.

Consumer Products Division: The segment’s revenues were $19.9 million, up from $17 million in the year-ago period. This year-over-year increase can be attributed to higher merchandise sales at the company’s e-commerce site, WWE Shop, and rise in video game and toy royalties. Rise in sales at the company’s e-commerce site helped offset the absence of venue merchandise sales due to the absence of ticketed-audience events in the quarter.

Other Financial Details

WWE ended the quarter with cash and cash equivalents of $519.5 million, short-term investments of $118.8 million, long-term debt of $21.8 million and stockholders’ equity of $382.2 million. The company incurred capital expenditures of $6 million and generated free cash flow of $110.8 million during the quarter under review. The company paid $9.3 million in dividends during the quarter.

We note that shares of this Zacks Rank #4 (Sell) company have fallen 19.9% against the industry’s growth of 3.2% in the past three months.

Key Picks

Shaw Communications (SJR - Free Report) , which carries a Zacks Rank #2 (Buy), has an estimated long-term earnings growth rate of 3.6%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

E.W. Scripps Company (SSP - Free Report) has a Zacks Rank #2. The company’s bottom line outperformed the Zacks Consensus Estimate in the last reported quarter by a wide margin.

News Corporation (NWSA - Free Report) , which carries a Zacks Rank #2, has a trailing four-quarter earnings surprise of 38.8%.

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