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World Wrestling (WWE) Posts Q4 Earnings Beat, Revenues Down Y/Y

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World Wrestling Entertainment, Inc. (WWE - Free Report) posted fourth-quarter 2020 results, with the top and the bottom line declining year on year. While earnings surpassed the Zacks Consensus Estimate, revenues missed the same. Top-line performance of this integrated media and entertainment company was adversely impacted by the absence of live events, due to public health concerns amid the coronavirus pandemic. Investors were disappointed with the quarterly performance, as shares of the company fell 5.4% during after-hours trading session on Feb 4.

Nevertheless, the company has been undertaking necessary steps to adapt with the changing media environment. Management is particularly enthusiastic regarding its agreement to license WWE Network content to Peacock. The move is expected to help boost content value and broaden the reach of brands. Moreover, gradual ramp-up of live events are encouraging.

We note that shares of this Zacks Rank #3 (Hold) company have gained 48.3% in the past three months against the industry’s growth of 42%.

 

Q4 Performance Insights

This Stamford, CT-based company reported fourth-quarter adjusted earnings of 24 cents a share that surpassed the Zacks Consensus Estimate of 20 cents. Markedly, this was the seventh straight beat. However, the quarterly earnings exhibited a decline of nearly 70% from 78 cents a share reported in the prior-year quarter.

WWE’s net revenues of $238.2 million declined 26% year over year and lagged the Zacks Consensus Estimate of $240.8 million. The downside was primarily caused by absence of the company’s large scale events in Saudi Arabia and the lack of ticket and merchandise sales. These concerns stemmed from cancellations, postponement and relocation of live events due to health concerns emerging from COVID-19.

 

A Look into Margins

The company’s operating income came in at $36.2 million, down 64% year on year primarily due to the absence of live events as well as increase in management incentive compensation and a rise in stock compensation expenses. Furthermore, the company’s operating income margin of 15.2% declined considerably from 30.9% in the year-ago quarter.

Adjusted operating income came in at $37.7 million, down from $99.8 million reported in the year-ago quarter. Adjusted operating margin came in at 15.8%, declining considerably from 30.9% in the prior-year quarter.

Adjusted OIBDA (which excludes stock-based compensation) came in at $51.2 million, which fell 52% year on year. Additionally, adjusted OIBDA margin declined to 21.5% from 33.3% in the prior-year quarter. We note that the company measures adjusted OIBDA as operating income, which excludes depreciation and amortization, stock-based compensation, certain impairment charges and other non-recurring material items.

Segmental Details

Media Division: Revenues in the Media division fell 20% to $210.5 million owing to the absence of large-scale events in Saudi Arabia as well as lower advertising and sponsorships. The downsides were partially compensated by growth in WWE Network subscription revenues. Markedly, WWE Network’s average paid subscribers totaled 1.5 million, up 6% year on year.

Notably, revenues from core content rights fees inched up 0.3% to $139.8 million. Network revenues (including pay-per-view) were up 8.2% to reach $45 million. However, advertising and sponsorship revenues fell 40.2% to $16.5. Also, other media revenues plunged to $9.2 million during the quarter from $56.1 million in the year-ago quarter.

Live Events: Revenues from Live Events came in at $0.7 million down 97% year on year, 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 $27 million, down 12% year on year. The decline was caused by reduced video game royalties, owing to the absence of the 2021 release of the company’s franchise console game. Additionally, decline in venue merchandise sales due to the absence of ticketed live events were a downside. These factors were partially offset by an increase in e-commerce merchandise sales.

Other Financial Details

WWE ended the quarter with cash and cash equivalents of $462.1 million, short-term investments of $131.3 million, long-term debt of $21.7 million and stockholders’ equity of $388.8 million. Moreover, cash flow generated from operating activities during the quarter amounted to $62.4 million, while free cash flow stood at $56.2 million.

The company paid out $9.3 million in dividends during the fourth quarter.

2021 Outlook & Other Updates

The company envisions 2021 adjusted OIBDA in the range of $270-$305 million. Adjusted OIBDA is likely to be driven by growth in revenues, courtesy of the Peacock transaction as well as gradual improvements in live ticketed events. These are likely to be offset by rise in personnel and production expenses. The company also highlighted that projected adjusted OIBDA for 2021 will reflect an increase of 15-20% without the impact of the coronavirus pandemic. This includes the loss of ticket and merchandise sales at live events and the higher production costs to further fan engagement.

WWE entered into a multi-year licensing agreement with NBCU’s Peacock streaming service. The agreement is likely to help the company reach a larger audience and achieve greater economic returns. Additionally, management informed that WrestleMania will return to Tampa Bay in April, at the Raymond James Stadium.

The company believes that restrictions on live events, owing to the COVID-19 pandemic, are likely to continue through the first half of 2021. Moreover, the company expects a rise in its expense base as employees return from furlough as well as higher costs associated with the production of its weekly Raw and SmackDown television content.

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