The results are in: World Wrestling Entertainment (NYSE:WWE) wins another match in decisive smackdown fashion.
Net sales for the fiscal third quarter increased 24.6% to $103 million, while operating income rose 67% to $20.7 million, and net income from continuing operations increased 23.7% to $13.6 million, for earnings of $0.19 per diluted share.
For the past nine months, net sales increased 15.2% to $285.8 million. Operating income just about doubled to $55.4 million, and net income from continuing operations rose 67.6% to $36.4 million, for earnings of $0.52 per diluted share.
Looking through the various segment highlights, one can see that just about everything seems to be going WWE's way. Pay-per-view buys, for instance, numbered 1.36 million this quarter versus 1.04 million last quarter. And each individual pay-per-view event enjoyed increases in its buy rate, including Taboo Tuesday, one of the company's newer offerings. WWE continues to believe that an expanded roster of pay-per-view events will drive enormous value to shareholders over time; to that end, a full 16 events are planned for this year.
Live events, home video, licensing, the WWE online shopping site -- you name it: All of these business segments are styling and profiling like the Nature Boy celebrating a moment of victory. Home-video revenues in particular strutted their stuff in impressive fashion -- the increase went from $4.8 million last year to $15.1 million this year.
The cash flow statement shows that net cash from operations increased more than fivefold to $52.2 million, a dramatic rise driven by the effect of discontinued operations and movie-production investment last year. Speaking of which, I am very bullish on the prospects of WWE's movie business; I believe the company will be able to leverage its various broadcasting platforms to provide extremely efficient marketing for its youth-targeted celluloid products. Coming up in May will be See No Evil, starring wrestler Kane. It's a horror film, which is a good thing, since horror sells -- just ask Lions Gate Entertainment (NYSE:LGF), which will be releasing the project.
WWE generated $45.5 million of free cash this past quarter. It paid out $33.2 million to shareholders in the form of dividends and retained its financial flexibility even after the checks were cut. Long-term debt decreased, and cash and equivalents increased. The stock currently sports a big yield of 6% based on a share price of $16 (the approximate quote as I write this). I think the company has the potential to become a nice income play over time.
So what's the bear case here? Well, for one thing, interest in wrestling is cyclical -- things could cycle down at any moment. And the entry into the film business does add risk, because, after all, it's the film business -- audiences might not take to the cinematic stories that WWE wants to tell.
Truth be told, though, I think the stock offers a great long-term investing opportunity. I would hold out patiently, however, for a drop in the shares, considering the short-term run-up. Then again, you do have to wonder how long the market will allow the stock to stay at a high yield -- once it becomes comfortable with the notion that the company has the cash flow ability to back it up, the yield could go lower, making the stock something of a value right now.
Wrestlemania is just around the corner, wrestling itself is about to return to NBC for a special event, and Vince McMahon will hopefully rock Hollywood with the WWE film -- so things look quite sweet indeed. Although I've owned WWE shares in the past, I really need to buy some for my portfolio now, as someone pointed out to me. I only wish I had already done so.
Heading down to the squared circle are a few more Takes featuring the WWE:
- Shareholders -- get ready to rumble!
- Yep -- WWE was a stock that took a hike.
- WWE knew when it was time to move on.
- Get the raw numbers from the Fool.
Got something to say, Jabroni? Say it now at the WWE discussion board.
Fool contributor Steven Mallas owns none of the companies mentioned. The Fool has a disclosure policy.
