By Jonathan Chen
The markets have extremely volatile lately, with gains and losses of 300 points becoming the norm. If only Stone Cold Steve Austin was this volatile. Wait, he is. Never mind.
World Wrestling Entertainment (NYSE:WWE) is definitely known for some outlandish things, including Austin himself. The fact that the company is laying the smack down on Wall Street earnings estimates today is one of them.
The Stamford, CT.-based company reported third quarter earnings of 19 cents per share on $108.5 million in revenues. Wall Street had been expecting earnings of 15 cents per share on $106.7 million in revenues.
"In the third quarter, our results reflected the Company's continued focus on improving business results in a difficult environment,” stated Vince McMahon, Chairman and Chief Executive Officer, in a comp. “Despite the challenging economic headwinds, both domestically and abroad, we generated increased profits across a majority of our businesses, with the main exception being our film business which we continue to monitor and refine to improve future performance. We believe the sluggish economy and our ongoing talent transition were important factors that affected the results of our other businesses. Based on our history of developing talent and creating content with broad appeal, we are confident we can address our creative challenges."
With improving earnings and better than expected revenues, shares of World Wrestling Entertainment are not the Heavyweight Champion just yet, but are at least in a number 1 contenders match, as shares are up around 1% today.
Last quarter, when the company reported earnings, there were fears of an additional dividend cut, and lack of excitement in the company's products. The Rock (Dwayne Johnson) is going to appear at multiple events, aside from the company's flagship product, WrestleMania 28, which McMahon and his executive team hope brings renewed enthusiasm for the company. Johnson appeared at WrestleMania 27, and it was one of the best selling pay-per-view events of all time for the company.
Johnson is scheduled to face the company's top superstar, John Cena, at WrestleMania 28, held in Miami.
TV ratings have been fairly weak, as the company competes with UFC, and other wrestling promotions. The company hopes to increase this, as it is set to launch its own network in 2012. In the press release, McMahon was enthusiastic about this. He said, "Further, by taking advantage of our strategic opportunities, including the anticipated 2012 launch of a WWE network, we can achieve meaningful growth.”
Some critics have said that the company made a mistake with C.M. Punk, their next big breakout superstar, by having a storyline with him that did not live up to the hype, and has put fans in a sleeper hold.
Despite this, the company has been able to attract investors with its 4.7% dividend yield, and hope that Johnson will bring a renewed excitement to a struggling brand.
While the company may never return to its heydays of the mid to late 1990's, WWE appears to be starting to turn itself around and begin to make the "hot tag". In the past month, shares have gained almost 18%, far outpacing the S&P 500.
That kind of performance is definitely worth a Stone Cold Stunner, and a 1, 2, 3 count.
Traders who believe that WWE will continue to generate stronger than expected revenues might want to consider the following trades:
- There is no chance of a takeover, with the McMahon family virtually holding all of the company's shares. If the company can generate increased excitement in its brands, it could be a strong name to consider if the U.S. economy does double dip into a recession.
Traders who believe that the WWE will get smacked down even with Johnson appearing at multiple pay per view events may consider alternate positions:
- The company failed to capitalize on the C.M. Punk story line, and may very well do the same with Johnson coming back. There is a reason why shares have continued to fall since going public in the early 2000's, and are down 27% year-to-date.
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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.