What: Shares of World Wrestling Entertainment (NYSE:WWE) soared on Thursday after the company reported its second-quarter results, beating analyst estimates for both revenue and earnings. At 3:40 p.m. Thursday, the stock was up about 18%.
So what: WWE reported quarterly revenue of $150.2 million, down 3.9% year-over-year, but $1.5 million better than analysts were expecting. EPS of $0.07 beat analyst expectations by nine cents, and was a significant improvement compared to a $0.19 loss during the same period last year.
WWE's performance was driven by the company's subscription service, WWE Network. CEO Vince McMahon had this to say: "The performance of WWE Network demonstrates our ability to transform our legacy pay-per-view business into a global subscription business with high growth potential. We have made meaningful progress executing our key strategic initiatives, including the achievement of significant international growth and increased engagement across our digital and social media platforms."
WWE Network subscribers increased by 75% year-over-year to 1.2 million, and average paid subscribers rose 31% sequentially. The company pointed to consumer research that indicates that 91% of subscribers are satisfied with the service.
Now what: Going forward, WWE expects sequential growth in the number of subscribers to slow. For the third quarter, the company is guiding for just a 3%-5% sequential increase in paid subscribers. One reason for rapid growth during the first half of this year was the addition of many International markets. At this point last year, the WWE Network was only available in the United States.
Unlike a service like Netflix, where the appeal is broad, there are a limited number of fans willing to pay for WWE Network. At this point, with growth in subscribers expected to slow dramatically, it appears that the bulk of those fans have already subscribed. However, WWE has shown that it can be profitable despite the WWE Network cannibalizing pay-per-view sales, and investors have sent the stock soaring as a result.
Timothy Green has no position in any stocks mentioned. The Motley Fool recommends Netflix. The Motley Fool owns shares of Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.