World Wrestling Entertainment (NYSE: WWE) increased 3% today after the second quarter earnings surpassed estimates. However, revenue fell short of expectations. The company’s stock has dwindled 30% since April post the disappointing first quarter results. It also maintained its full-year sales outlook of $1 billion, in line with street estimates.
The company reported 5% drop in revenues of $268.9 million due to lower revenues from all its segments. Analysts were expecting top line to come in at $275 million.
However, earnings came in at 11 cents per share, surpassing 4 cents projected by the street. Improvement in EPS was primarily due to lower tax expenses and a cut back on losses from equity investments.
Operating margins fell 2% due to lower revenues and surge in investments. Adjusted OIBDA margins contracted 2% but came in ahead of the guidance, mainly due to improved revenues from the event conducted in Saudi Arabia.
Engagement Metrics Trend
The company’s engagement metrics continues to disappoint. TV ratings for its Raw and SmackDown fell 14% and 11% respectively. Digital content consumption improved 22% over last year, but fell 1% from the prior quarter. Live event attendance fell 2% due to reduced ticket sales impacted by the less number of events conducted in the quarter.
However, WWE is bullish on improving the engagement by bringing back the Superstars for the new season. In addition, the company plans to debut on Fox in October with SmackDown Live. This is expected to garner more visibility and improved viewership in the near future.
WWE Network offers streaming service direct to its consumers following the freemium model. The declining trend of paid subscribers is a worrying trend for investors and this would be watched closely in the latter half of the year.
At the end of Q2 period, the streaming service saw 6% reduction in paid subscribers. However, for the third quarter, this number is further expected to decline by 8% to 1.53 million over prior year period.
In order to address the declining user base, WWE has shifted the OTT service to a new platform which would result in improved user experience. It also has improved the content localization supporting more languages and offers more proprietary content to the users.
For the Q3 period, WWE is projecting adjusted OIBDA to be between $17-22 million. Analysts are expecting revenue of $214.66 million, 14% jump from the prior year. Adjusted EPS is projected to decrease to 15 cents compared to 37 cents last year.
On the fiscal guidance front, the company expects sales to be about $1 billion and adjusted OIBDA around $200 million. However, it has cautioned investors that there could be an impact of $10-20 million to the fiscal outlook considering the headwinds in the rest of the year.
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