Shares of WWE (WWE) were in focus on Friday morning after the company's second quarter revenue fell well below analysts' estimates and the sport-entertainment company said it is exploring alternatives for its WWE Network. In a "best case" scenario, Needham analyst Laura Martin said Amazon (AMZN) would buy out all of WWE's U.S. and offshore rights for WWE's OTT Network.
EARNINGS: For its fiscal fourth quarter, WWE reported earnings per share of 78c, beating the 73c consensus. Revenue of $322.8M, however, fell below the $333.28M analysts were expecting. Adjusted OIBDA increased 67% to a quarterly record of $107.6M, the company said. It added that it is pursuing several strategic initiatives that could increase the monetization of its content in 2020 and/or subsequent years, including the distribution of content in the Middle East and India as well as the evaluation of strategic alternatives for the company’s direct-to-consumer service, WWE Network. "During the fourth quarter, we expanded the reach of WWE's live programming and further engaged with diverse audiences across platforms and formats," said Vince McMahon, WWE chairman and CEO. "We believe the value of live sports will continue to increase, particularly in today's evolving media landscape, and we are well positioned to take advantage of this trend to maximize the value of our content."
Looking ahead, WWE forecast fiscal 2020 adjusted OIBDA of $250M-$300M and capital expenditures of $180M-$220M.
WHAT'S NOTABLE: WWE had already been under pressure since last week, when co-presidents George Barrios and Michelle Wilson departed the company. Frank Riddick III, a WWE board member for 11 years, was named named interim Chief Financial Officer, reporting to McMahon. At the time, WWE also updated its fiscal 2019 adjusted OIBDA view to $180M, at the low end of its earlier forecast of $180M-$190M.
According to a Variety analysis in July 2019, ratings for WWE's two main shows -- "Monday Night Raw" and "SmackDown Live" -- had declined around 20% each vs. the beginning of 2018. "SmackDown" later moved to Friday nights on Fox, and while the show initially doubled its audience, the show's ratings have since fallen in line with where they were on cable, according to the report.
'BEST CASE' WHERE AMAZON BUYS WWE: Needham analyst Laura Martin lowered her price target on WWE shares to $55 from $80 and said WWE is exploring a "transformative" deal based on selling its OTT content rights to the highest bidder. If the OTT Network content is "sold," she believes the bidder will also be the most likely ultimate buyer of WWE. In her "best case" scenario, Amazon would buy out all of WWE's U.S. and offshore rights for WWE's OTT Network, which she contends would put Amazon in the best spot to purchase all of WWE, whenever the McMahon family is ready to exit.
UNCERTAINTY AROUND WWE PLAN: Wolfe Research analyst Eric Katz downgraded WWE to Peer Perform from Outperform with a price target of $45, down from $97, telling investors that he "just can't get comfortable with the strategy, management, or numbers at these levels" following the company's earnings and guidance. While a "transformational" shift in the WWE Network strategy may be "what's best for business," we don't know what it is yet and there is too much uncertainty around the plan at this point, Katz added.
Meanwhile, Loop Capital analyst Alan Gould lowered his price target on WWE to $43 and kept his Hold rating after the company's "very disappointing" 2020 guidance and indicated consideration to sell its WWE Network. The analyst noted that the deal would be "transformative" to WWE, but also sees the outcome as "binary" depending on whether the sale proceeds.
WWE STILL OFFERS GOOD GROWTH OPPORTUNITY: MKM Partners analyst Eric Handler lowered his price target on WWE to $58 after its worse than expected Q4 revenue and disappointing initial FY20 guidance. The analyst kept his Buy rating on the shares however, noting that the bad news for the stock is likely in while the company continues to offer a "good growth opportunity" over the next few years, with none of the upside from reaching TV deals in MENA and India included in the expectations.
Benchmark analyst Mike Hickey said WWE delivered "a considerably weak FY20 OIBDA range" along with its Q4 report, which also disappointed, given uncertainty around international content agreements and an increase in investments. The recent management shake-up and profitability shortfall has shaken investor confidence, but he views this as a clearing event and would "position opportunistically" for the long-term. The analyst, who still thinks WWE offers an investment opportunity with significant upside, kept a Buy rating on the stock but lowered his price target on the shares to $57 from $79.
PRICE ACTION: In morning trading, shares of WWE were up 0.5% to $44.74.
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