WWE Pulling A Stunner In A SmackDown Market

I won't lie to you. It's ugly out there and more than likely going to get worse before it gets better. It's not as ugly as

, but close enough. Despite all the ugliness today, World Wrestling Entertainment is not sitting in the SmackDown Hotel, but appears to be the King of the Ring, at least for one day. World Wrestling Entertainment, Inc.

reported second quarter earnings of 21 cents per share on $142.6 million in revenues. Wall Street had been expecting earnings of 24 cents per share on $138.47 million in revenues. “Through the second quarter, WWE has generated top-line growth across our four business segments led by the strength of WrestleMania. WrestleMania XXVII achieved more than 1 million pay-per-view buys worldwide and reached record levels of both revenue and profit,” stated Vince McMahon, Chairman and Chief Executive Officer. “Our earnings, however, were constrained by the performance of our movie business, adverse home video sales trends, and the status of our talent development. Key operating metrics, such as average live event attendance and pay-per-view buys showed declines in the second quarter when evaluated on a comparable basis to last year (excluding WrestleMania). But, while our key metrics were down, the gap to our prior year performance continued to diminish. We believe this trend demonstrates that we are making important progress on our talent development and creative initiatives. As we continue to evaluate the potential of different forms of distribution, such as a WWE Network, we are more confident than ever that we can create and monetize content in a variety of existing and new media, and thereby create meaningful incremental value for our shareholders.” The Stamford, Ct.-based company reported a mixed bag of earnings this morning, missing on the bottom line, but beating on the top line. In this kind of market, you would think shares would be getting destroyed. Not so fast my friend. Shares are currently up ~3% as of the time of this writing. So why is WWE giving the smackdown to shorts today? Shares had started the day in negative territory, as investors were punishing it for the earnings miss. During the conference call, starting around 11 a.m., things started to turn around for the better. CEO Vince McMahon, who is a larger than life figure himself just like his entertainers, said that The Rock (Dwayne Johnson) would be appearing at "multiple" pay-per-view events aside from WrestleMania 28. Johnson, a former WWE superstar, turned actor, has provided stimulus to the company and was able to help turn Wrestlemania 27, the company's big show, turn in record revenues. Over $28 million in revenues were generates from the event, held in early April. The company also did better on two of its other three major pay-per-view (PPV) events during the quarter, generating more buys than analysts had expected. Shares currently trade at 13 times 2012 earnings and sport a 5% dividend to boot. This is below the historical average of approximately 16 times earnings, and the company recently had to cut its dividend in order to help strengthen the company's balance sheet. Revenues soared 33% from last year, thanks in large part to bringing The Rock to Wrestlemania. The welcomed news of having The Rock at additional PPV's throughout the fiscal year is likely to generate more buyers, which is where WWE generates a significant portion of its revenue. There appears to be a renewed interest in the brand, led in large part to new superstars such as C.M. Punk, and better storylines for its talent. At the company's last PPV, entitled, "Money in the Bank," there was massive attention paid to what Punk would do, as his contract had run out on July 17th, and the fans genuinely did not know what would happen at the event. It injected an air of freshness into the company not seen in years, and was able to generate massive amounts of media buzz. ESPN, Jimmy Kimmel, etc. all went after Punk to try to capture the incredible popularity he captured in a few short weeks. In addition to the new found popularity, the company is also planning on launching a lead in show to its flagship Monday night program, WWE Raw. The show will air at 8 p.m. with Raw keeping its regular 9 p.m. time slot. While the company may never return to its heydays of the mid to late 1990's, the company appears to be starting to turn itself around and begin to make the "hot tag". Just a few weeks ago, it looked as if it would be down for the 1, 2, 3. Now it looks as if it's on its way to becoming champion again.

Traders who believe that WWE will continue to generate stronger than expected revenues might want to consider the following trades:

Traders who believe that WWE will fail to capture the gold with its recent success, may consider alternate positions: