World Wrestling Entertainment (NYSE: WWE) entered a match it apparently was unprepared to win this time around. I'm talking about a match for the most coveted prize on Wall Street: The Earnings Championship Belt.
During the second quarter, WWE had to lie down for the count. The top line saw a depressing decrease of nearly 6%, coming in at $129.7 million. The bottom line saw no growth whatsoever, as WWE earned $0.10 per diluted share, the same amount that was earned in the year-ago period. According to Briefing.com, this represents a miss of two pennies. One thing that must be noted is that the big Wrestlemania event took place during the second quarter last year and the first quarter this year.
Of course, one of the most fascinating elements of WWE's stock is its incredible yield. Right now, the company is trading at a yield greater than 9%. Considering WWE's massive brand power in sports entertainment, and the fact that wrestling should always be with us, that sounds like a great deal, correct? It could be over the long term.
However, a look at the cash-flow statement does not offer a lot of encouragement, to be honest. Operational cash flow declined massively, dropping 94% during the six-month period. And for both the quarterly period and the half-year period, there was negative free cash flow by management's own calculation. So, as can be seen, servicing a dividend with no free cash flow is like Rey Mysterio trying to body slam Andre the Giant.
What's one of the reasons for the cash-flow issue? WWE is pumping funds into its movie division. If you believe that Linda McMahon knows what she's doing and will eventually deliver some celluloid hits, then you'll look at the current cash-flow statement as nothing more than a short-term sacrifice for future gains. I'm willing to remain patient, because I still believe in the long-term thesis of movie investment. I just hope the results are better than the first projects released by WWE. See No Evil, The Condemned, and The Marine didn't bring in the crowds.
As for the rest of the report, things are okay in my opinion, but the company needs to find opportunities that will allow the pay-per-view operations to expand its buy-rate metric more aggressively. And costs are getting out of hand, something the CEO alluded to herself. That hampered growth, and it must be dealt with accordingly.
WWE is down, and it's finding that playing the movie game a la Disney (NYSE: DIS) and Time Warner (NYSE: TWX) is more difficult than it appears. But it has its core business of wrestling to fall back on, and that has to be worth something. In terms of the stock, I'd probably find it more interesting at this point if it made a run back to its 52-week low. I hope next quarter brings some better growth.
Disclosure: I own Disney; positions can change at any time.
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