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After updating my estimate for WWE’s financial outlook, I’m expecting the company to exceed its first quarter guidance ($90 million to $100 million in adjusted OIBDA) when reporting results on Thursday. My annual estimate for adjusted OIBDA is now $375 million, slightly above the high end of WWE’s guidance for the full year of 2022.
Q1 2022 results (prior estimate from February in parentheses):
Revenue: $316.1 million ($313.9 million)
Adjusted OIBDA: $113.0 million ($110.4 million)
Net income: $64.9 million ($63.0 million)
Diluted EPS: $0.81 ($0.76)
Full year 2022 results (prior estimate from February in parentheses):
Revenue: $1.257 billion ($1.251 billion)
Adjusted OIBDA: $376.2 million ($364.9 million)
Net income: $214 million ($205.8 million)
Diluted EPS: $2.64 ($2.49)
I believe the current share price (about $59 as of this writing) is closer to fair value than when I wrote about the subject in February, as the stock was then trading at under $56.
Changes in this estimate are largely driven by an increase in expectations for Wrestlemania ticket sales and correction of an error related to venue merchandise for the previous Q1 estimate.
The increase in the earnings per share (EPS) estimate is largely influenced by WWE’s reduction in outstanding shares. Basic shares totaled 74,427,607 as of March 22, as disclosed in the recent proxy statement. That’s down substantially from the 76,324,000 basic shares as of December 31. I expect diluted shares to be affected proportionally.
Estimated revenue for the full year 2022 is up slightly to $1.257 billion (from $1.251 billion), largely due to an improvement in my expectation for paid Wrestlemania ticket sales. The prior estimate expected 80,000 paid, but based on my analysis of WrestleTix estimates of ticket distributed, I’m now modeling 117,000 paid. The increase in paid ticket sales for Wrestlemania, which happened in Q2, consequently increases venue merchandise expectations.
The above estimates aren’t affected by updates related to WWE’s new MENA rights announcement, the renewed agreement with A&E, or the new Disney+ Hotstar deal.
It’s not clear to what extent the MENA rights deal with MBC is a meaningful change in linear distribution in the MENA region as at least some of WWE’s core content was already broadcasting on MBC. Furthermore, pirate broadcasting in this region could weaken the value of such a deal. The streaming portion of the announcement, for distribution with Shahid, is new, took effect at the end of March, but its value is unclear. Likewise for Hotstar. Neither deal supersedes an incumbent. International licensing of WWE content through streaming services is encouraging to international growth, but immediate returns from economies in MENA and APAC regions, where price points are lower, I view with caution. It’s also not clear yet if A&E content will premiere before the year ends; therefore it’s uncertain whether related revenue will be recognized before year-end.
A 1.5x increase in core content rights fees is my baseline expectation for WWE’s upcoming U.S. media rights negotiations for Raw and Smackdown agreements that expire in September 2024.
I think there are at least three reasons to be optimistic: (1) It seems likely WWE including president Nick Khan can manage to get additional bidders interested in Raw and Smackdown rights. (2) The market for highly-ranked live sports continues to appear strong, despite newly-tempered optimism about the future of streaming. And (3) WWE’s ratings for its two flagship shows seem to have stabilized for the time being, as well as other metrics indicating fan interest, which until recently have been on a multi-year decline.
My tentative view is that the next agreement will include the sale of streaming rights to some extent. Because the reach of streaming is lower than that of linear, deals to put content on streaming for other sports properties seem to have been made at a premium to the content provider (e.g., NHL and ESPN+). However, I believe balancing reach with dollars will be a key factor influencing where WWE’s rights land.
The conceivable bidders for Raw and Smackdown in my view are, in order of plausibility: NBCUniversal, Fox, Paramount, ESPN/Disney, Amazon, Netflix, and Apple.
Apple seems least believable to me because I struggle to imagine it sees WWE, or any pro wrestling content, as a brand match for what’s probably the strongest brand in the world. Apple may be more realistic after it has a larger collection of sports rights.
Netflix is more plausible as a buyer of WWE’s next-day rights, which expire at the end of 2022. Because of pro wrestling’s brand perception in contrast to Netflix, I doubt WWE will be Netflix’s first step into live sports. The streamer is more likely as a player for WWE in a term further in the future.
Amazon is already deeply involved with live sports, so taking on WWE wouldn’t be an early live sports move, nor does Amazon have such a pristine brand as Apple, but like Apple, they have deep pockets and video content isn’t their main business, so they can afford to spend. That said, exclusively broadcasting Raw or Smackdown on Prime Video doesn’t seem wise, because it would significantly diminish the viewership for either program. Gathering the largest possible viewing audience is key for a wrestling company that also has, albeit smaller, live event and consumer product businesses. Surely, there could be synergy between Amazon and WWE’s consumer products business, but the latter is entirely based on WWE’s recognizable intellectual property, valuable necessarily because that IP is exposed weekly to a wide audience. However, if Amazon partners with (or acquires) a media company with strong linear TV presence, that would improve the viability of a WWE-Amazon broadcast partnership.
ESPN/Disney and Paramount are major traditional players with linear and streaming platforms to support which could fit for WWE. ESPN had interest in the monthly premium live (formerly “pay-per-view”) events WWE dealt to Peacock in 2021. Still, it’s difficult to imagine a predetermined sport in primetime, especially year-round, on the ESPN flagship network, much less finding a regular time-slot among other sports content. There’s less reach value for WWE if those shows are relegated to lower-profile ESPN2 or ESPN+ without a strong regular home on traditional TV. When Smackdown has been preempted from Fox to FS1, its viewership has fallen by about 50% despite FS1 covering the vast majority of cable homes.
The former ViacomCBS was the home of Raw from 2001 to 2005. Although it has the biggest scripted series hit currently (Yellowstone), Paramount is the weakest of the five major traditional conglomerates. It seems like a viable bidder and a fit for the Paramount cable network if the parent wants to spend to strengthen that channel. The highly-ranked USA Network and powerful Fox broadcast platform, though, seem like a better fit.
Disclosure/disclaimer: I do not currently hold nor have I at any time in the past held positions in World Wrestling Entertainment (NYSE: WWE). I do not have any plans to initiate any such positions in the next 72 hours. This article solely expresses my own opinions. I am not being compensated for this article other than through audience-driven revenues, including Patreon subscriptions and programmatic advertising. I am not a certified financial analyst or financial advisor. This article is not investment advice and should not be construed as investment research.
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