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World Wrestling’s Action Plans Bode Well: Should You Hold?


World Wrestling Entertainment, Inc. WWE is posed to gain from the recent partnership, strategic initiatives, increase in subscriber base and growth opportunities in North America, Europe/Middle East/Africa (EMEA). The Zacks Rank #3 (Hold) company has an impressive long-term earnings growth rate of 20%, which further gives an indication that analysts are optimistic about its performance in the long run.

Shares of this integrated media and entertainment company, has gained 5.8% in the past six months, outperforming the Zacks categorized Movie/TV Production/Distribution industry’s decline of 3%. Other stocks from the same space such as Lions Gate Entertainment Corp. LGF.A and IMAX Corporation IMAX have fallen 1.3% and 35.7%, respectively, while MSG Networks Inc. MSGN has increased 3.6%. Let’s delve deeper and find out what’s aiding the stock.

Strategic Efforts

In order to boost WWE Network’s revenues, the company has been implementing certain strategies including the development of fresh content, execution of customer acquisition and retention programs, increase in distribution platform, introduction of new features along with foraying into new locations. Further, WWE Network is available in the Indian Subcontinent, Germany, Austria, Malaysia, Switzerland and Japan.

The strong relationship between WWE and Groupe AB is set to continue in to the 18th year with both companies extending the partnership. Per the deal, both the companies have signed multi-year agreement for airing WWE programming, which comprises of WWE’s leading shows which includes the likes of Raw as well as SmackDown.

Moreover, in the previous month a leading worldwide developer as well as publisher of free-to-play mobile games, Glu signed a multi-year agreement with World Wrestling to develop mobile game containing WWE Superstars, logos and marks.

Growth in Subscriber Base

WWE’s international paid subscriber at the end of first-quarter 2017 was at 409,000, sharply up from fourth-quarter 2016’s figure of 370,000. Earlier, WWE stated that it anticipates contractual rise in television right fees from important distribution agreements and believes that it will continue to add more WWE Network subscribers but at a lower rate on a year-over-year basis. The number of average paid subscribers increased 16% in first-quarter 2017 to 1.49 million. For second-quarter 2017, WWE anticipates average paid subscribers of 1.63 million. Further, WWE Network is available in the Indian Subcontinent, Germany, Malaysia, Austria, Switzerland and Japan.

Optimistic about OIBDA Growth

Management is optimistic about achieving another great year of revenues and adjusted OIBDA growth. The company is targeting adjusted OIBDA of $100 million, which is nearly up 25% from the 2016. Adjusted OBIDA is projected in the range of $13–$17 million buoyed by growth of the top line, WWE Network subscribers and contractual television rights fees.

What Could Limit Growth?

WWE which distributes home entertainment content in both physical (DVD and Blu-Ray) as well as digital formats has been witnessing decline in revenues. In 2016, home entertainment net revenues came in at $13.1 million in comparison with $13.4 million and $27.3 million in 2015 and 2014, respectively. Further, the trend continued in the first quarter, with home entertainment revenues declining 27%. The decrease in home entertainment revenues has been primarily due to steady shift of consumers to digital formats downloaded or streamed over the Internet.

Further, WWE operates in the highly competitive market of entertainment video. Competition in the entertainment video space has increased significantly and the company expects it to become more intense in the coming days.

WWE currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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