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WWE ‘Evaluating Strategic Alternatives’ for Streaming WWE Network

World Wrestling Entertainment said it was “evaluating strategic alternatives” for its streaming WWE Network, a move that coupled with a dramatically reduced 2020 outlook helped drive the stock down by about 15% in early trading Feb. 6.

WWE stock had been in a nosedive since Jan. 30 when it announced that its co-presidents George Barrios and Michelle Wilson abruptly left the company after differences with the WWE board concerning the company’s strategic direction. While the stock had started to recover slightly in the past two days, Thursday’s announcement erased those gains and then some.

WWE reported a Q4 revenue increase of 18% to $322.8 million and cash flow was up 67% to $107.6 million in the period. For the full year, revenue was up 3% to $960.4 million and adjusted OIBDA (a measure of cash flow) was $180 million, slightly ahead of the $178.9 million generated in the prior year. Net income in the quarter decreased to $77.1 million ($0.85 per diluted share) from $99.6 million ($1.12 per diluted share) in the prior year primarily due to the impact of the finance lease related to WWE’s new headquarters, and a higher effective tax rate in the current year.

But it was the company’s revision to its 2020 outlook that seemed to panic investors.

WWE shares were down 14.9% ($7.33 each) to $41.67 per share in early trading Feb. 6. The drop comes as WWE management is expected to discuss Q4 results in a conference call with analysts at 11 a.m.

WWE said it expected full year 2020 cash flow to be in the range of $250 million to $300 million, well below most analysts' expectations.

In a research note, Evercore ISI Group media analyst John Belton called the 2020 outlook a “huge negative surprise, adding to a growing list of uncertainties around the story.”

Belton had estimated WWE would generate $360 million in 2020 cash flow -- consensus estimates were about $390 million.

“It remains unclear precisely what is included in the company's outlook, as TV deal renewals in India and the Middle East remain unsigned and given the revelation that ‘strategic alternatives’ are being considered for the WWE Network,” Belton wrote.

WWE launched the WWE Network in 2014. In the fourth quarter, subscribers to the streaming service declined by 10% to 1.42 million, the company said.