World Wrestling Entertainment Inc. (WWE - Free Report) delivered robust quarterly results for the third straight quarter, when it came out with fourth-quarter 2017 financial numbers. Back-to-back solid performances are an indication that the company’s effort to focus on increasing original content production, localization and strategic initiatives bode well. These efforts have helped the stock to gain 54%, compared with the industry’s growth of 18.9%.
Let’s Delve Deep
WWE reported adjusted earnings of 21 cents (excludes charge related to new tax law) a share that beat the Zacks Consensus Estimate by a penny and improved sharply from the year-ago figure of 10 cents.
Moreover, WWE’s revenues of $211.6 million surpassed the Zacks Consensus Estimate of $206 million and jumped 9% year over year, primarily on the back of 8% increase in revenues in North America and monetization of WWE’s video content. Further, revenues from outside North America rose 9% year over year owing to rise in television right fees, robust digital advertising sales as well as increase in revenues in the EMEA and APAC regions from consumer products.
The number of average paid subscribers increased 5.5% year over year in the quarter to 1.48 million. The company had previously stated that it launched WWE Network in China with its PPTV partners. Further, WWE Network is already available in the Indian Subcontinent, Germany, Malaysia, Austria, Mexico, Switzerland and Japan.
Revenues from North America jumped 8% to $153.4 million, while revenues from Europe/Middle East/Africa (“EMEA”) came in at $37.8 million, up 10.5% year over year. The Asia Pacific (“APAC”) and Latin America generated revenues of $14.3 million and $6.1 million, which represent a gain of 6.7% and 7%, respectively.
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.
Media Division: Revenues from the company’s Media division increased 8% to $135.2 million, mainly owing to increase in contractual television right fees, growth registered in WWE Network Subscribers and due to rise in digital advertising revenues. Network revenues were up 6% to $46.2 million and Digital Media revenues climbed 51% to $12.8 million. Moreover, Television and Home Entertainment revenues came in at $75.3 million and $0.9 million, up 10% and down 79%, respectively.
Live Events: Revenues from Live Events declined 9% to $35.2 million primarily due to 7% decrease in average attendance, which marginally overshadowed 5% gain in average effective ticket price. A total of 101 events took place in the fourth quarter, which includes 68 events in North America and 33 internationally. In the prior-year quarter, there were 103 events in total, including 75 in North America and 28 globally. North-American live event revenues came in at $21.7 million, down 5% year over year. While International live event revenues were down 15% year over year to $13.5 million.
Consumer Product Division: This segment’s revenues came in at $30 million, up 8% year over year. Revenues from WWE Shop and Licensing both advanced 12% each to $14.3 million and $11.3 million, respectively.
World Wrestling Entertainment, Inc. Price, Consensus and EPS Surprise
Other Financial Details
WWE ended the quarter with cash and cash equivalents of $137.7 million, long-term debt of $31 million and shareholders’ equity of $252.9 million. In the fourth quarter, the company had generated free cash flow of $48.6 million compared with $30.9 million in the year-ago quarter.
For 2018, management is optimistic about achieving another great year of revenues and adjusted OIBDA growth. The company is targeting adjusted OIBDA of at least $115 million in 2018. Moreover, excluding stock-based compensation expense the company anticipates adjusted OIBDA to be at least $140 million in 2018.
For first-quarter 2018, WWE anticipates average paid subscribers to be nearly 1.53 million. Adjusted OBIDA (excluding stock-based compensation expense) is projected in the range of $23-$27 million.
Long-term Growth Driver
We believe WWE will continue to report record revenue growth as it has not only extended its earlier deal with different companies but also signed agreement with new service provider for airing its flagship program Raw and SmackDown in different countries.
The company stated that distribution agreement, which generated a large chunk of television rights revenues, will expire in 2019 in some regions. Licensing of Raw and SmackDown in the United States will terminate in Sep 30, 2019, while in the UK and India it will expire on Dec 31, 2019. The company is looking to renew the distribution agreement in these regions somewhere between May 2018 and first-half 2019.
Zacks Rank & Key Picks
WWE currently carries a Zacks Rank #3 (Hold). Better-ranked stocks are Time Warner Inc. , MSG Networks Inc. (MSGN - Free Report) and The New York Times Company (NYT - Free Report) , both carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Time Warner has an impressive long-term earnings growth rate of 10.2%.
MSG Networks has reported positive earnings surprise in the trailing three quarters.
The New York Times delivered better-than-expected earnings in the trailing four quarters.
The Hottest Tech Mega-Trend of All
Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce ""the world's first trillionaires,"" but that should still leave plenty of money for regular investors who make the right trades early.
See Zacks' 3 Best Stocks to Play This Trend >>