I'll be honest: I don't get fired up to listen to conference calls like some market junkies I know. Don't get me wrong, it is an essential part of the job, and a venue to get some valuable nuggets of information that less studious investors miss. It's just the majority of these calls are pretty boring, and they're more of an opportunity for analysts to get some face time.
However, there is always one call that gets me fired up just because of the surreality of it. It usually starts like this, "At this time, it's my privilege to turn this call over to Vince." That would be Vince McMahon, the wrestler and CEO of the world's largest professional wrestling company, World Wrestling Entertainment
Unfortunately for WWE investors, all of the fun has been body-slammed out of the stock over the past several weeks. WWE reported its fourth-quarter results yesterday, but investors already knew results would be terrible after the company issued a warning in January that earnings would be $0.08 to $0.10, while analysts were expecting $0.16 per share.
The stock was pummeled as investors worried that the company may have to cut its massive dividend, but the company announced this week that it would maintain its $0.36 per share dividend for now. The dividend is currently yielding 12%, and McMahon said it is reviewed on a quarterly basis. Even though McMahon has proven his commitment to maintaining the dividend by taking cuts to his own and other insiders in the past, future decisions will really boil down to the company's ability to boost growth. While the environment is still tough, it appears WWE may be on track to do just that.
There certainly was a lot to dislike about WWE's most recent quarter. Revenue at its core live events was down due mainly to a 15% decline in attendance in the U.S., and even more disappointing was a 12% decline in international attendance. An 11% increase in the price of tickets helped offset some of the empty seats, but it showed a lack of demand for the product. Pay-per-view revenue also fell 15% as customers didn't appear to trade in the trip to the arena for the opportunity to watch WWE's prime events.
While these revenue declines are troubling, WWE is beginning to make some progress on what I believe will be its key growth initiatives. Even with attendance down at international events this quarter, the company has been focusing on growing total revenue in what it calls its "red market," consisting of China, Mexico, India, and Turkey. In these countries, overall revenues increased 75%, led mainly by toy sales and greater television rights fees. WWE's sales of action figures and other toys have improved significantly since ending its partnership with Jakks Pacific
WWE had its first-ever show in China last year and sold out the venue in less than an hour. It also has recently completed television distribution deals in Russia and Brazil, giving WWE a large audience in all of the emerging BRIC countries.
McMahon has also been pushing the idea of having his own television network for a while now, but the company has finally taken some steps in this direction; WWE TV is expected to launch later this summer. McMahon says the company recently talked with Verizon
McMahon doesn't plan on moving WWE's core programming to this network, but instead he plans on using it much life the NFL does with its own network. It will serve as a great marketing tool for its core programming as well as new programming, at a very low cost because of its existing production efficiencies. According to McMahon, "if things happen as we hope, it will be a really big game-changer. There is huge opportunity as it relates to domestically and internationally. We are pursuing that and taking the next steps."
WWE's quarter was certainly a blow to shareholders that has put the company's dividend at risk. However, I wouldn't be so quick to count Vince McMahon and his team out yet. Consumers have a lot more entertainment options today than they did in WWE's glory days, but the company's audience will continue to grow significantly as it expands abroad. Caution is warranted for the dividend hounds, but WWE's days of growth may not be numbered just yet.