World Wrestling Entertainment’s (NYSE:WWE) Q3 GAAP EPS roughly in-line with our expectations due to solid growth in Live and Televised Entertainment offset by further declines in WWE Studios. Revenue was $109 million, compared with our estimate of $106 million, and the consensus estimate of $107 million. GAAP EPS was $0.14, (including a $0.05/share charge for film impairment), compared with our estimate of $0.15, and the consensus estimate of $0.14. The company did not provide financial guidance.
Pay-per-view revenue growth driven by WrestleMania. Q3 PPV revenue was up due to a 23,000 buy increase y-o-y, with WrestleMania accounting for 65,000 incremental buys, meaning that buys and revenue for non-WrestleMania events was actually down this year. The importance of WrestleMania to WWE’s financial performance should continue to increase due to declining live attendance and buys for many other PPV events. In addition, international events revenue was greater than- expected due to strong attendance and ticket prices.
Content library could present a revenue opportunity. Should WWE monetize its library by selling Internet streaming rights, it could see meaningful revenue growth.
Negative trends within Consumer Products. We believe WWE (NYSE:WWE) may limit Home Video revenue declines through increased sales to the video rental companies, which view direct-to-video selections as low cost and high margin. Licensing revenue is also expected to decline due to one less WWE video game next year (WWE All Stars was released this March), and low unit shipments for WWE ’12.
The performance of WWE Studios continues to negatively impact financial results. WWE Studios revenues declined by over 50% y-o-y to $3.7 million due to the weak performance of its current film releases, and the company took a $5.1 million impairment charge from revised projections. Although we continue to view WWE Studios as a potential source of revenue growth, the losses incurred in recent quarters make us skeptical the segment can turn a profit in the near-term.
Maintaining our NEUTRAL rating and increasing our 12-month price target to $11 from $9, which reflects a multiple of 12x our new 2012 EPS estimate of $0.90, in line with WWE’s slow growth entertainment peers. We see a number of potential positive catalysts for WWE shares (NYSE:WWE), but are content to remain on the sidelines until management shows signs of executing on these opportunities.
Michael Pachter is an analyst at Wedbush Morgan.