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THOUGHTS AND ANALYSIS ON WWE’S SECOND QUARTER FILING AND CONFERENCE CALL - FULL BLOG IS NOW ONLINE

By Dave Scherer on 2020-07-30 16:59:00

Thoughts on the Second Quarter filing:

The market was expecting good numbers from WWE.  The stock was up around a dollar most of the day.  They got them in the second quarter report and the stock is way up in after hours trading.  It is up $3.16 as of 5:06 PM.

Revenues are down, as one would expect without WrestleMania and other live events, but the new TV deal was so good and strong for the company that it made up for  that. When you consider that while revenues were down, expenses were as well, the company actually showed a huge increase in operating income.  The Street loves seeing those kinds of numbers and I think it’s pretty clear that the new TV deals that started last October are the reason for the the happiness that investors have.  They will give WWE a cushion going forward.  As I have said many times, I hope they use that time to create new stars because in four years we have no idea what rights fees will be.  The entire TV industry is in flux and change and it’s impossible to predict what rights fees will be when the deal runs out.  As this report showed, TV revenue is the engine driving the company.

On another really good note for the company they effective tax rate dropped by 5%.  More money stays with the company when they pay less taxes.  As long as they have the TV deals that they have, the company is on strong footing.

I am really surprised that the WWE Network number stayed so strong.  My hunch is that like with other streaming services, the pandemic has helped WWE keep customers.  Of course, a lot of the ratings drop has happened this month so it will be interesting to see if they can keep the numbers up when we get the Third Quarter earnings in three months.

Thoughts on the Conference Call:

Vince came on and said what I wrote above, the had a strong quarter due to cost cutting (and TV deals).  He talked about all of the usual things that he talks about, engagement, Network subscribers etc.  He said all of the things you would expect from the CEO.  

He then threw it over to Frank Riddick, who he said was doing a great job as the interim CEO.  So make it permanent already!  Well, if Frank wants it at least.

Thoughts on the Q and A:

First question was about the ratings.  I don’t expect a great answer.  How concerned is Vince about the drops and what is the strategy to turn it around?  Vince blamed the lack audience interaction.  The audience is a big part of their success.  I couldn’t really make out what he said about storylines.  I hope he said we need to make them better.  He isn’t always easy to hear on these things.

As COVID stays with us, it will affect doing live events.  But they are also learning things they can do that, when they are back running live events, can save money.  Good companies do that, look at factors in a downturn and figure out how to save money when things get better.

No decision has been made on doing the Saudi Show this year but Vince doubts it will happen.  Yeah, I think most of us doubt it will happen!  Here in Vegas they pushed off next month’s scheduled Garth Brooks show at Allegiant Stadium to February.  WWE will be lucky if they can run Mania in a big building, or even a smaller one, next year.  

Vince is passing questions to Jayar.  No, not THAT JR!

They were asked about ads being placed on the WWE Network free version.  They are evaluating it.  There’s no reason to rush it, ad money is way down due to the pandemic.  It doesn’t make sense to put the ads in until they can really monetize them.

We are under the new India TV contract!  Hoo ha!  Well, I really don’t care but the guy that asked did.

Jayar thinks the Network is doing as well as it is due to the theatrical matches and more people being home and streaming.  Vince said the free network hasn’t hurt the paid version. I think people being home has helped.  I not sold on the Swamps being a big draw, but I could be wrong.

They were asked, with cord cutting, about selling the PPVs to an OTT, as they said they were considering back before the world went COVID. They think they are attractive to steaming service. As I have said a few times, it will be really interesting to see how much they are worth.  When I can get all I get from YouTube TV for half of what Comcast pays me, it tells me if more people join me streaming, there’s a good chance that rights fees won’t go up in four years.

Vince was asked about why AEW and NXT have rebounded better than WWE, did you abandon trying to create new starts for Raw, why did you fire Paul Heyman and could HHH be given more power.  I didn’t expect much of an answer when Vince said “that’s a lot”.  Well I wouldn’t have expected much of an answer even if he hadn’t said that!

Vince said AEW and NXT are newer. They are still trying to create new stars for Raw. Paul Levesque already helps. It’s all hands on deck. Paul Heyman did a great job. In other words he said nothing. I bet the guy who asked wondered why he bothered. 

They were asked what the timing is to recapture the lost TV fans. Vince said it will take months. The key is to be back in front of an audience. They won’t be back in front of an audience for a while so they better find a way to stop the bleeding.  And my question would be what happens if, once you are live again, the people don’t come back?

They were asked about rights fees and how they could go downward in the future. Frank said that they don’t have any deals coming up. They are lucky. As I said above that very well may be a big question down the road as more and more people are cutting the cable cord. USA, for instance, may not think it’s worth it to pay $270M for Raw in four years. They used to be vying to be the number one cable network so WWE’s audience was important to them.  Now?  They are well down the totem pole.  So, it’s a real concern, especially when you consider how huge the TV deals are to the company. It will be really interesting to see how The Street feels in quarter four, when WWE starts recycling the new TV deals, especially if they don’t have any live events.  Will investors see a company propped up by great TV deals with a finite future?

For those wondering if EVOLVE will run shows, nope, it was a content purchase.

Live Events, when they return, will be a phased approach given how things are around the country.  I think that could actually be a plus for them.  They can load up their shows and take a less is more approach.  Live Events have been a problem for a while for WWE.  Instead of running two shows a night, they could start with one.  As I have said before, I would love to see them go with a schedule where Smackdown runs on Friday.  They do a Raw/Smackdown house show on Saturday and Sunday, on non-PPV weekends.  Smackdown goes home, Raw goes to Raw.  If they get to the point where there is more demand for shows, then they can do brand only.  In the interim, they can run one building and, in theory at least, draw more people.  The net will be much higher for them  Also, it will take a while for the talent to get back into the groove of wrestling more often and traveling.  A reduced schedule will help them with that.

That was the last call.  We didn’t get the Vince sycophant this time.  I feel cheated!

The stock was up $2.66 after hours, to $48, as I posted this.

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