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WWE Needs to Diversify

Eric Volkman
April 11, 2012

Wham! World Wrestling Entertainment (NYSE: WWE  ) crushed a company record for event sales with the latest version of its annual extravaganza, WrestleMania. The event grossed $8.9 million -- a nice chunk of change, but the company needs more than a full house at its big event to get back on the growth wagon.

No longer on steroids
Once a reliable producer of growth, WWE has seen little of it lately. Revenue crawled up only 1% year over year for fiscal 2011 to hit $484 million. Nothing grew very impressively for the company, including the all-important live events and TV segment. Despite honest attempts at diversification, this unit still produces around 70% of company sales. It's too bad, then, that last year it took in only 2.5% more revenue on an annual basis.

A better opportunity for growth lies in international expansion. After all, the company actively produces shows all over the world, including hot economic regions like Asia. However, it also seems stuck overseas. The 2011 take from outside North America fell slightly year over year, while its percentage of overall revenue didn't budge, at 28%.

The only significant line item rising to any degree is the company's spending. Cost of revenue grew in both the company's latest reported quarter and fiscal year, at a respective 17% and 15% clip year over year. Yikes. Compounding this is the company's habit of blowing out its free cash flow via the payment of generous dividends. This is pleasant for shareholders in the short term, who are enjoying the stock's relatively high yield (nearly 6% at the moment), but it's clearly unsustainable.

DiversiMania should be running wild
The company will always rely heavily on live shows and TV. After all, such offe