As we all know, wrestlers can't win every match. They're sometimes destined to lose based on whatever story arc is evolving at the time. In similar fashion, World Wrestling Entertainment (NYSE:WWE) can't have a great quarter every time it enters the squared Wall Street circle. That's what I was thinking as I read over the company's Q4 release.
In contrast to last time around, WWE saw revenues, operating income, and net income all decline -- can you say 1, 2, 3? Yeah, Mr. Market the ref was quick to count the company out of the rumble. Revenues declined 3.4% to $114.3 million; investors should keep in mind that one offsetting element regarding revenues was the decline in television advertising (from $12.5 million in last year's quarter to $2.2 million in this year's quarter) due to the company's decision to receive flat licensing fees from its cable-network distributor instead of selling ads itself. Moving on, operating income decreased 33% to $15.1 million. Net income dropped 34.2% to $10.6 million, or $0.15 per diluted share.
Not a great quarter. But before we get depressed, let's Hulk up with the more positive year-end numbers.
Net revenues increased 9% to $400 million. Operating income soared 40% to $70.5 million. Net income jumped 20% to $47 million, or $0.67 per diluted share. Not bad. For the fiscal year, revenues for many of the company's segments rose nicely. As an example, consumer products revenues gained 60%, the digital media segment revenues (which includes e-commerce initiative WWE Shop) rose 75%, and pay-per-view sales expanded by nearly 11%. And the subscription-video-on-demand service WWE 24/7 -- an important possible driver of shareholder value because it will help monetize the company's 75,000-hour library of valuable wrestling content -- went from $0.1 million in revenues to $1.1 million.
As for cash flow, the company really shined here. Since it didn't use as much capital this year for feature film production, WWE saw its operational cash flow triple to $67.3 million. Free cash flow rose 400% to $57.9 million.
But you won't always see increases like that; in fact, the company stated that its net income might see zero growth during the next eight months due to its intentions to invest in initiatives such as the ECW and its digital-media segment.
Back to the issue of feature film production -- I've been a bullish believer in the WWE Films operation and think it will drive value down the line. The company should be able to synergistically use its brand and programming to launch successful films and reap nice residuals from them. Unfortunately, the company says it won't be able to recognize any revenue from its current project, See No Evil -- released by Lions Gate Entertainment (NYSE:LGF) -- in the next quarter because the film hasn't done well enough yet to earn back the costs of prints and advertising for the distributor. Hopefully the DVD and pay-TV markets will look favorably upon wrestler Kane's cinematic debut and bring in some value. Again, I still look upon films as a logical expansion for WWE's business model.
So what have we got? We've got the WWE company, an institution in American culture. We've got a company that brings in the cash and is making investments for the future with its cash. I concede that the company had a bad quarter with deteriorating margins and lower sales, but I'm not ready to become bearish on it, because I believe the long-term prospects are still golden due to the enduring appeal of wrestling. Movies, subscription services for its huge stash of content, consumer products, pay-per-views -- all of these things should support a rising dividend over time. With a dividend yield just under 6% (as of yesterday's closing price), I'd say the stock is still worthy of a rumble with the evil Mr. Market.
More fun with the WWE:
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Fool contributor Steven Mallas owns none of the companies mentioned, but acknowledges he needs to get around to buying some WWE shares already. The Fool has a disclosure policy.
