Commentary on WWE Q1 Results

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Mookie's notes

On Thursday, WWE announced, "record quarterly revenue".

First quarter revenue jumped to $176.2M (up more than fifty million over last year's first quarter) and OIBDA came in at $21.0M (highest number in ten quarters). Operating income, which has been negative for five consecutive quarters, finally registered a huge improvement at +$15.1M.

Obviously, the advantage of holding WrestleMania 31 in Q1 2015 (versus WrestleMania 30 in Q2) is that the timing results in a HUGE revenue shift (WWE estimates it at $24.9M).

What's driving WWE's revenue growth?

• TV Rights: the preponderance of new TV deals signed in 2014 have began in Q4 2014 and Q1 2015. We've already seen quarterly TV revenue jump $16M in just 6 months.

Meanwhile, it's interesting to see that ratings for WWE's flagship show (Raw) and SmackDown have been flat/declining. Still, Total Divas continues to be a valuable hit for the company. And with Tough Enough returning to television and SmackDown moving to USA Network at the beginning of next year, clearly NBCU still sees big opportunity in the WWE product.

• WWE Network: With 1.327M paid subscribers as of 3/31/15, WWE generated more $28 million in revenue. Once again, WWE announced that they will be running a "free month for new subscribers", this time in May. And they've promised they are "developing plans for geographic expansion to India, China, Germany, Japan, Italy, Thailand and Malaysia."

Yet, quarterly Churn for the WWE Network is still high (284k in Q1). WWE seems to believe they'll be able to retain more and more subscribers year-round going forward instead of the historical WWE fan model where many tuned out between April and December each year.

Also, international WWE Network subscriptions (which includes Canada) are less than 15% of the total WWE Network number (196,000 of 1,327,000). However, in the past, WWE averaged more like 38% of total WWE PPVs from outside USA/Canada. Does this imply a large portion of WWE fans cannot access the WWE Network (do to lack of availability or reliable broadband access?) or that some 125,000+ fans are accessing the domestic version of the service?

Scattered notes:

WWE Q1 Results

                                             REVENUE                           OIBDA                                 NET INCOME

Q1’15                                  $176.2M                             +$21.0M                                +$9.8M

Q1’15 w/o WM                 $151.3M                             +$21.4M                             +$10.1M

Q1’14                                  $125.6M                             +$12.9M                                -$8.0M

(This is WWE's accounting. Dave Meltzer indicated that it looks like they weren't assuming that WWE Network swell between January & March in the "pro-forma" on WrestleMania. In reality, WM 31.)

Growing Segments:

·        TV Rights (new deals signed for Q4’14 & Q1’15; grew to $58.2M)

·        Live Events (WrestleMania, domestic house show attendance up 4%; grew to $37.5M)

·        WWE Network (new UK market in January; 3/31/15 = 1.327M paid subscribers; grew to $28.6M)

·        Licensing (Video Game-higher unit sales, higher royalty rates; downloadable content including the WWE Supercard)/Venue Merch (WM); residual sales from Q4 activity spill over to Q1

Declining Segments:

·        Home Entertainment (dropped to down 5.8M versus same quarter last year)

·        Digital Media (loss of WWE Magazine, no more WWE PPV webcasts; dropped to $4.3M quarter)

·        WWE Studios (only generated $1.5M in revenue this quarter)

Exceeded Revenue/OIBDA expectations. However, market-opening rise in stock price to above $15 was quickly reversed and currently stock is hovering around $13.50 (-6%).

WrestleMania 31:

WM31 was the “highest-grossest event in WWE history”

KPI (Key Performance Indicators) page on Attendance implies that WM31 attendance was 57,800

·        7,400 NA for 73 events w/ WM and 6,700 NA for 72 events w/o WM

·        WWE internal calendar from Annual Bootleg Merchandise Lawsuit listed the Levi Stadium Capacity at 66,060

·        WWE announced the attendance for WM31 at 76,976

WM31 Revenue was calculated at $24.9M including $15.7M (Live Events) and $3.3M (Venue Merchandise, broke WM29 record of $2.7M).

PPV Buys: $9.0M

·        WM31 (259,000 buys)

·        Fast Lane 2015 (46,000 buys)

·        Royal Rumble 2015 (145,000 buys) 

WWE Network

Revenue: $28.6M            

·        1,327,000 paid subscribers as of 3/31/15; subscribers as of 12/31/14 was 816,000.

·        795,000 “gross additions” (new subscribers plus “win-backs”)

·        Q1’15 Churn was 284,000 subscribers (Q4’14=-251K, Q3’14=-255K, Q2’14=-144K)

·        Remaining marketplaces: India, China, Germany, Japan, Italy, Thailand and Malaysia.

·        Possible new Distribution devices? ChromeCast & Android TV.

·        196,000 international subscribers (15% of total) which is below historic non-North America PPV buys average (38%)

·        “All new subscribers who register for the network in May will receive the network for free in that month, including WWE Payback live on Sunday, May 17”

·        Will continue to add 1,000 hours to “robust video-on-demand library” including the new programming. Barrios specifically called out the new Springer “Love Hurts” episode as example of new programming initiative.

·        77% of the 201,000 “trial subscribers” from February became paying subscribers in March. (Might include some of the UK/Ireland fans who signed up in January?)

·        94% of total subscribers access WWE Network

Strategy:

·        Programming: 8 brand new original shows (“compelling special programming and “short form content”)

·        Promotions (Free May)

·        Features/Distribution (“improve user experience and content discovery across devices”, “continuing to expand distribution platforms”)

·        New Geographies (India/China/Germany/Japan/Italy/Thailand/Malaysia)

OIBDA on Network segment (PPV+WWE Network) was still -$1.5M despite the 1.33M paid subscribers.

To compare, Q2 2012 (with WM29) generated $18.9M in OIBDA for that segment.

Lots of factoids about “WWE Network engagement vs. broadcast and cable networks” showing WWE has “53.43 viewing hours per Household” which exceeds HBO (36.3), Disney (39.4) and ties with TeleMundo (53.2).  Netflix was the market leader at 167.1.

Viewing Hours per Household was “Cumulative hours of network content watched across network households divided by the number of viewing households” whatever that really means.

SOCIAL MEDIA

WWE had 1.6 billion total views in Q1’15 on YouTube and 333 million Social Media Followers on Facebook along with 107 million Twitter followers.

Meanwhile, the Digital Media segment brought in $4.3M.

Still a huge push for WWE as they feel right now is a “land-grab” and they view engagement as key to reaching the younger generation as well as evidence to show advertisers why WWE is important beyond TV ratings.

TELEVISION

WWE Television Rights swelled to $58.2M during first quarter of 2015. That’s up nearly $16M since before the new deals started at the end of last year.

·        SmackDown is moving USA Network during Q1 2016.

·        Tough Enough is starting on USA Network in June

·        Vince said Total Divas was #1 show on E! since the Kardashians were on hiatus

According to WWE Raw ratings were down

·        RAW ratings were down 5% this quarter (3.5 versus 3.7 for Q1 2014)

·        SmackDown ratings were down 7% (2.2 versus 2.3 for Q1 2014).

OTHER ISSUES

Barrios didn’t give his India pitch. Did talk briefly about China in the Q&A.

No mention of TapouT partnership, though that deal doesn’t start until 2016.

No surprise that Home Entertainment has been down (shipped 620,000 units in Q1 2015 versus 1,087,000 units in Q1 2014). Top recent seller was Slam City (116k, Nov.) & Best of Sting (84k, Sept).

No real discussion about WWE Studios. The segment was unprofitable this quarter (-$400k) as usual.

First time net income has been positive since Q3 2013.  Net Income in Q1/Q2 2012 was higher than this quarter. $176M in Revenue was a quarterly record.

HOW TO UNDERSTAND FINANCIALS