WWE Q3 Earnings to Gain from Subscriber Growth, TV Right Fees

World Wrestling Entertainment, Inc. WWE is scheduled to report third-quarter 2017 financial numbers, before the opening bell on Oct 26. In the previous quarter, the company beat the Zacks Consensus Estimate by 16.7%.

Notably, the company’s earnings have missed the Zacks Consensus Estimate in two of the trailing four quarters by an average of 8.2%. Here’s a discussion of the determinants of the second-quarter results.

Factors Influencing This Quarter

After generating record revenues in 2016, WWE had impressed investors with its revenue generation ability. In the first and second quarters of 2017, the company had reported top-line growth of 9.9% and 10.7%, respectively. We believe WWE will continue to report record revenue growth as it has not only extended its earlier deal but also signed agreement with new service provider for airing its flagship program Raw and SmackDown in different countries. Further, subscriber growth and worldwide increase in TV rights fees will boost the top line further higher.

In July, WWE reached an agreement with sports marketing agency Lagardère Sports in an effort to augment revenues. Per the agreement, Lagardère Sports will help in building partnership portfolio through its sponsorship proficiency and global sales channel in all international regions, excluding China. We believe with increasing subscription based video streaming services, WWE Network through its vast presence in over 180 countries will be able to capitalize on the trend. Consequently, this is likely to aid top-line growth.

Moreover, management is optimistic about achieving another great year of revenues and adjusted OIBDA growth. The company is targeting adjusted OIBDA of $100 million for 2017, up nearly 25% from the 2016. In first-half 2017, the company has already generated adjusted OIBDA of $36.7 million. For the third quarter, adjusted OBIDA is projected in the range of $31-$35 million driven by top-line growth, WWE Network subscribers and contractual television rights fees. In the fourth quarter, it anticipates adjusted OIBDA of at least $28-$32 million.

However, WWE operates in the highly competitive market of entertainment video. Further, decline in home entertainment and pay-per view revenues has been a major concern for the investors. In 2016, home entertainment net revenues came in at $13.1 million in comparison with $13.4 million and $27.3 million in 2015 and 2014, respectively. Further, the trend continued in the first and second quarter of 2017, with home entertainment revenues declining 27% and 3.2%, respectively. The decline in home entertainment revenues has been primarily due to steady shift of consumers to digital formats, downloaded or streamed over the Internet.

World Wrestling Entertainment, Inc. Price, Consensus and EPS Surprise

World Wrestling Entertainment, Inc. Price, Consensus and EPS Surprise | World Wrestling Entertainment, Inc. Quote

What to Expect?

The question lingering in investors’ minds now is whether World Wrestling Entertainment will be able to post positive earnings surprise in the quarter to be reported. The current Zacks Consensus Estimate for the quarter under review is 20 cents, in comparison with year-ago quarter earnings of 14 cent. We note that the Zacks Consensus Estimate has been stable in the past 30 days. Analysts polled by Zacks anticipate revenues of $173.2 million compared with $164.2 million reported in the year-ago quarter.

Zacks Model Shows Unlikely Beat

Our proven model does not conclusively show that WWE is likely to beat earnings estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. WWE has an Earnings ESP of 0.00% as both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 20 cents. The company carries a Zacks Rank #3 which increases the predictive power of ESP but an ESP of 0.00% makes a surprise prediction difficult. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
 
Stocks Poised to Beat Earnings Estimates

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

Twenty-First Century Fox, Inc. FOXA has an Earnings ESP of +1.74% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Charter Communications, Inc. CHTR has an Earnings ESP of +5.66% and a Zacks Rank #3.

Comcast Corporation CMCSA has an Earnings ESP of + 0.13% and a Zacks Rank #3.

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