Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of World Wrestling Entertainment (NYSE:WWE) quickly shot to a gain of nearly 10% after today's opening bell, but couldn't hold the investor crowd's attention well enough to sustain that momentum. Shares had dropped back to modest gains of around 4% as of 1:05 p.m. as the market digests WWE's fourth-quarter earnings results.
So what: WWE's fourth-quarter revenue grew 19% year over year to reach $140.5 million for the quarter, and its adjusted net loss also narrowed from $0.10 per share in the year-ago quarter to $0.01 per share today. Both results beat Wall Street's expectations, which had sought $135.7 million in revenue and a loss of $0.08 per share. These results were credited to growth in the company's WWE Network on-demand service, which added 85,000 subscribers to hit a total of 816,000 at year's end. It appears that fewer than half of these are international subscribers, as the service only opened up to other countries in mid-August and WWE reported 44,000 subscribers from these countries at year's end.
The company is now reporting "1.4 million unique subscribers, with 71% of these subscribers active" through the end of January. This works out to about 994,000 active subscribers, with no mention of how many are currently paying for the service.
WWE also offered guidance for the first quarter and full year based on a rather wide range of paid subscribers -- the company may break even in adjusted operating income before depreciation and amortization (adjusted OIBDA) if it maintains 800,000 paid subscribers for the first quarter, but it may reach up to $10 million in adjusted OIBDA with an even 1 million paid subscribers. The company's full-year guidance is even more widely dispersed, from adjusted OIBDA of negative $10 million to $10 million with just 500,000 average paid subscribers for the year to a whopping $210 million to $230 million in adjusted OIBDA at an average of 2.5 million paid subscribers over the course of 2015.
Now what: While it appears likely that WWE will now break even on its streaming network gamble in 2015, the big question still centers on how much upside the WWE Network really has. A huge number of subscribers appear to drop off during the less-interesting times of the year -- WWE's Royal Rumble took place in January, and it's widely considered to be the second most important pay-per-view event on the company's schedule behind WrestleMania, which will take place in March.
WWE's subscriber numbers will undoubtedly rise as interest rises in WrestleMania, but the real test for the network will be whether it can sustain that interest through the spring and summer months, which have historically seen lesser interest in WWE events. I remain skeptical that WWE can recapture the widespread interest that drove it to great heights more than a decade ago, and the market appears to agree with me for the time being, as the company's shares remain more than 40% lower than they were a year ago, when the WWE Network experiment began.