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WWE's 2010 fourth quarter financial results - disappointing but slightly better than expected

The good news from WWE's fourth quarter financial results was that they were slightly better than their initial projections three weeks ago suggested.  In an official press release on January 21st, which caused their stock price to tumble, WWE had braced their investors for a below par quarter:

WWE (NYSE:WWE) announced today that, based on currently available data, it believes that earnings per share for the fourth quarter, ended December 31st, 2010, will be in a range of $0.08 to $0.10.  Analysts' average estimate for fourth quarter EPS is $0.16 per share.

Fortunately, in today's press release, they were able to announce an earnings per share slightly above their initial projections, but the bad news was that it was still significantly down from last year:

Net income was $8.1 million, or $0.11 per share, as compared to $11.2 million, or $0.15 per share, in the prior year quarter.

The news for the year as a whole was brighter, as they posted a 6% increase in net income for the year as a whole despite their disappointing final quarter, something Vince McMahon tried to emphasise in the press release:

In 2010, WWE achieved record operating performance, generating the highest level of reported EBITDA in the Company's history despite a challenging environment, particularly over the latter part of the year.  Difficult trends continued in the fourth quarter and were exacerbated by the performance of Home Video.  For the quarter and the full year, our businesses exhibited three major areas of strength: increased value from our television content, significant growth from our new toy licensing partnership with Mattel, and continued financial discipline.  These strengths served to mitigate the impact of a weak economy, changes in our talent base, and unfavorable industry trends in home video.  We remain confident that we can address our talent related challenges, expand both our content and distribution and, leveraging our strengths, drive meaningful growth.

In other news of note from the results and conference call:

  • Vince McMahon said that the company was focused on getting new stars over, mixing newer talent with older ones at WrestleMania to do so.  I'm not sure they'll have the courage of their convictions to put the newer stars over cleanly though, which is a key to getting them over.
  • McMahon predicted that business will turn around after WrestleMania, just like he did six months ago but with the turning point being last year's SummerSlam, so I wouldn't put too much stock in that.  Early indications for the Royal Rumble gave him some cause for hope though.
  • When asked about who would be the next John Cena, McMahon pointed to The Miz, Randy Orton and Alberto Del Rio.  Well, that's better than saying we haven't got any next John Cena's lined up, though Del Rio could become as big as Cena in Mexico.
  • McMahon said plans for a WWE TV network are developing very well.  Potential carriers of the station are reacting positively to the idea, though negotiations are at a very preliminary stage.  WWE are planning to expand their production facilities in 2011, partly to prepare for the proposed network, which will cost the company $8-12 million.
  • Business was down almost across the board with live event attendance down 15% domestically and 11% internationally, PPV buys down 15%, Raw vs. Smackdown video game sales down 35% and DVD sales down a whopping 44% (paying the price for burning through all their potential big sellers in years prior) compared with 2009.  Bucking the trend was revenue from toy sales which was up 113% thanks to the deal with Mattel.  International television rights fees were also up.
  • Mexico, India, Russia and Brazil were pushed as developing markets ripe for growth.
  • Ticket sales for WrestleMania were ahead of last year's schedule, encouraging given the higher ticket price scaling this year.
  • The PPV breakdown was that Hell In A Cell was down 73,000 buys (when will they learn that two weeks between PPVs is a killer for business), Bragging Rights was down 44,000 buys to rock bottom levels (expected to do badly coming the weekend of UFC 121 Lesnar vs. Velasquez), Survivor Series was up 9,000 buys and TLC was down 33,000 buys year on year.
  • The movie division also lost money, losing $1 million in the quarter and $2.7 million for the year as a whole, after Legendary and Knucklehead both did disappointing business.  I don't think The Chaperone will help matters any.
  • The most newsworthy story of the last quarter wasn't discussed, as Seeking Alpha predicted.  The absence of any mention of the recent resignation of WWE's COO and Director Donna Goldsmith may suggest that it was her decision to leave and that she wasn't forced out over these disappointing results.

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