After reporting earnings beat in the trailing three quarters, World Wrestling Entertainment Inc.WWE succumbed to negative earnings surprise in second-quarter 2016. The company's earnings per share of a penny missed the Zacks Consensus Estimate of 8 cents and also decreased 85.7% year over year.
Despite the earnings miss by a huge margin, the company's shares did not slide in the negative territory and remained almost stable instead, as investors were pretty impressed by the its record revenue in the reported quarter. It reported its highest-revenue quarter ever. WWE's revenues of $199 million came in above the Zacks Consensus Estimate of $184 million and also jumped 32% year over year.
The company's record revenues were mainly driven by a substantial increase in revenues in North America, Europe/Middle East/Africa (EMEA) and gain in WWE Network's total subscriber base. The number of paid average subscribers increased 25% in second-quarter 2016 to more than 1.5 million. WWE Network is also available in the Indian Subcontinent, Germany, Malaysia, Austria, Switzerland and Japan.
Revenues from North America surged 39.5% to $149.8 million, whereas revenues from Europe/Middle East/Africa (EMEA) improved 17.5% to $36.2 million. The Asia Pacific (APAC) and Latin America generated revenues of $11.2 million and $1.8 million, which represent a gain of 6.7% and 20%, respectively.
Media Division: Revenues from the company's Media division jumped 19% to $117.5 million as Network, Television and Digital Media revenues increased 29% to $51.8 million, 8% to $56.1 million and 71% to $6.5 million, respectively, from the prior-year quarter. On the other hand, Home Entertainment revenues came in at $3.1 million, flat year over year. Increase in Network revenues were primarily due to 25% gain in subscription revenues whereas gains in Television revenues were mainly driven by contractual gain in key distribution contracts.
Live Events: Revenues from Live Events were up 97% to $51.9 million, primarily due to change in the timing of the company's annual WrestleMania event. A total of 81 events took place in the second quarter, which includes 62 events in North America and 19 internationally. In the prior-year quarter, there were 86 events in total, including 65 in North America and 21 globally. North-American live event revenues surged 142% year over year to $40.9 million. On the other hand, International live event revenues grew 16% year over year to $11 million.
Consumer Product Division: This segment's revenues rose 16% to $25.2 million, bolstered by increased revenues from merchandise. Licensing revenues plunged 20% to $9 million year over year.
WWE Studios: This segment reported revenue growth of 44.4% of $5.2 million.
Other Financial Details
WWE ended the quarter with cash and cash equivalents of $16.2 million, long-term debt of $14.9 million and shareholders' equity of $216.2 million. Corporate and other expenses came in at $49.4 million as against $42.4 million in the prior-year quarter. At the end of the second quarter, the company had a negative free cash flow of $7.6 million compared with a positive $8.5 million in the year-ago quarter.
For third-quarter 2016, WWE anticipates average paid subscribers of 1.49 million, signifying a year-over-year increase of nearly 27%. Adjusted OBIDA is projected in the range of $24-$28 million.
Management is strengthening and expanding the WWE Network through the creation of new content, implementation of programs which will have higher customer attraction and retention power, introduction of new features, expansion of distribution platforms and foraying into new regions.
Zacks Rank and Key Picks
WORLD WRESTLING Price, Consensus and EPS Surprise
WWE, which shares space with Live Nation Entertainment, Inc. LYV , has a Zacks Rank #3 (Hold). Other stocks better-ranked stocks which warrant a look include Liberty LiLAC Group LILA and MSG Networks Inc. MSGN . Both the stocks hold a Zacks Rank #2 (Buy).