World Wrestling Entertainment, Inc. WWE has not only surged but also outpaced the industry year to date. This Zacks Rank #3 (Hold) stock has rallied 134% in the said time frame compared with the industry’s growth of 23.1%.
The company’s focus on increasing original content, subscriber growth, rise in TV rights fees and monetization of video content across digital and direct-to-consumer platforms act as major growth drivers.
WWE has been implementing strategies including the development of fresh content, execution of customer acquisition and retention programs, increase in distribution platform, introduction of new features and foraying into new regions. Such efforts are likely to boosts WWE Network’s revenues.
Given its solid reach on television, WWE witnessed third fascinating season of Total Bellas; developed a new series, Miz & Mrs. (premiered on Jul 24, 2018); premiered the eighth season of Total Divas and launched new weekly series, NXT UK.
This led to an increase in the number of average paid subscribers that climbed 9% year over year in the third quarter to more than 1.66 million. Management now envisions average paid subscribers of approximately 1.56 million for the final quarter, reflecting an increase of 8% from the prior-year quarter.
In the long haul, the company will continue banking on WWE’s content distribution agreement to bolster subscriber base. Earlier, the company stated that in some regions distribution agreement will expire in 2019. Notably, it is looking to renew the distribution agreement in the U.K. by the end of 2018 and in India by the first half of 2019.
Moving on, WWE announced multi-year deals with Fox Sports and USA Network for its flagship programs, effective from Oct 1, 2019. Per the agreements, USA Network will continue to air Raw, while SmackDown will be broadcasted on Fridays on the Fox broadcast network.
Per management, these agreements will improve the average annual value of WWE’s U.S. distribution to 3.6 times of the contract with NBC Universal. Management earlier stated that these agreements will likely bump up revenues from $311 million in 2019 to $462 million in 2021. Going ahead into 2019, WWE expects adjusted OIBDA of minimum $200 million, assuming substantial revenue growth from the latest U.S. deals.
However, we believe that fall in ticket sales during live events, lower number of live events, rising costs at WWE Network and stiff competition from other entertainment platforms may hurt profitability. Also, the company’s media segment is vulnerable to rising capital expenditures, content costs and operating expenses.
All said, while the above-mentioned headwinds are concerns, the company’s efforts to strengthen and expand the WWE Network through the creation of new content, implementation of programs, introduction of new features and foraying into new regions are likely to drive growth in the near future. This is further supported by the company’s VGM Score of B.
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