Why WWE's Focus On Engagement, Cost Cutting During Pandemic Could Pay Off

World Wrestling Entertainment, Inc. WWE shares traded up 2.3% on Friday after the company reported better-than-expected second-quarter earnings.

WWE reported adjusted EPS of 52 cents in the quarter, beating analyst estimates of just 15 cents. However, revenue was down 17% to just $223.4 million, missing analyst estimates of $231 million.

The COVID-19 outbreak has devastated WWE’s live events revenue, which was down nearly 98% to just $1 million.

Cost Cutting Pays Off: Morgan Stanley analyst Benjamin Swinburne said WWE’s earnings beat suggests the company’s cost-cutting efforts are helping offset COVID-19 disruptions.

“WWE is successfully managing its expenditures during the pandemic, while benefiting from its predictable, contractually locked in TV rights revenues,” Swinburne wrote.

He said WWE is actually on track to post year-over-year EBITDA growth in 2020. WWE has been producing all of its live TV content from its performance center in Florida, which has allowed the company to meet its content obligations at significantly lower costs.

Focusing On Engagement: Needham analyst Laura Martin said digital video views were up 1% to 9.9 billion and viewing hours were up 15% to 374 million thanks to the lack of live events and shelter-in-place environment. Wrestlemania video views were up 20% from a year ago despite the event being taped in the Performance Center without an audience.

“In addition, WWE launched a free version of the WWE Network which could draw incremental fans into the WWE universe, and ultimately convert them into paid subs,” Martin wrote.

She said the company’s focus on viewer engagement and cost discipline should pay off for investors in the long-term.

Morgan Stanley has an Equal-Weight rating and $52 price target for WWE. Needham has a Buy rating and $50 target.

The stock trades around $46.39 per share.

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Photo credit: Ed Webster, Flickr