Source: The Motley Fool via MSNBC
World Wrestling Entertainment reported results for its first fiscal quarter yesterday. Wall Street seemed to like the data — let’s see what we think of the numbers.
Revenues were pretty flat compared to last year, coming in at $93.3 million. Operating income, likewise, was about the same, equaling out to $15.6 million versus $15.8 million in the year-ago time frame. And to complete the theme, net income saw virtually no change as the company earned $11.3 million, or $0.16 per diluted share.
As can be seen, things were pretty dull for WWE this time around. There weren’t any significant declines in the above metrics, but there wasn’t any growth, something that investors always want to see. Nevertheless, the stock did close yesterday with a gain of more than 11%, mainly on the fact that expectations were beaten.
There was, however, one area of very precipitous decline; in fact, this is the area that counts the most — yes, even more than earnings. Head on down to the statement of cash flows and you’ll find that the company’s net cash from operations looks like it just suffered a spine-twisting Pedigree from Triple H — that number dropped 89% to $2.4 million. Instead of generating free cash flow, the company actually used up about a million bucks, compared to booking over $21 million of cash flow in the previous year.
Two items that affected the cash flow are an investment in film production and an acquisition of some library product. I personally am in favor of such investments. Content is always valuable; WWE has an on-demand strategy in place and is definitely behind the exploitation of its archive material for shareholder benefit. As far as I am concerned, making movies will be a long-term positive for the company, even in light of the disappointing See No Evil, a WWE Films product that was distributed by Lions Gate Entertainment(NYSE:LGF).
Looking through the rest of the report, we see that WWE is doing well with its home video and digital media businesses — the increases in those units helped to drive a 28% revenue increase for consumer products. The Wrestlemania 22 DVD sold 345,000 copies and aided the 55% gross-unit increase observed in the entire video category. Pay-per-views decreased, but that was due to the fact that the previous quarter held one extra event.
Other areas may have seen decreases, but all in all, I think WWE is doing fine. The company is still in the process of replacing lost revenues due to its new cable deal, which sees advertising revenues eliminated in favor of a straight licensing structure; in addition to that, a $5 price increase has been enacted for the pay-per-view events, which I think will be accepted over time by the fans. There are still four more months in this transition period (the company is changing its fiscal year end to December) to see how things shake out.
WWE has a tempting yield (and who doesn’t like tempting yields?), a strong brand, a lot of wrestling aficionados, and a great ambition for digitizing content and monetizing it through broadband access. Its movie business may not be wowing ’em right now, but give the McMahons time — they’ll score some hits. Hopefully they’ll be able to give big guns like Disney(NYSE:DIS), Viacom(NYSE:VIA), and Time Warner(NYSE:TWX) at least a little run for their money. This is one stock that is definitely worth a look, especially on a pullback from yesterday’s run-up.
