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WWE Network on Shaky Ground, Triggering Drastic Changes

NEW YORK (TheStreet) -- World Wrestling Entertainment's (WWE - Get Report) plans to get its transformational WWE Network to 1.4 million subscribers has caused the company to cut 7% of its staff and change how it rolls out the network.

At the end of the second quarter, the WWE Network had 700,000 subscribers, a net add of just 33,000 since Wrestlemania 30 in April. The company announced a plan to make the network a pay-per-view a-la-carte channel in Canada with Rogers Communications (RCI), starting Aug. 12 and running for 10 years. In addition, the deal renews Rogers' license of WWE's Raw and SmackDown shows, and grants Rogers distribution rights to the company's pay-per-views.

WWE has said previously that 1.4 million subscribers gets the network to a breakeven point.

WWE said it expects the network will be live in the U.K. by October, but plans "for the network in Italy, UAE, Germany, Japan, India, China, Thailand and Malaysia will be communicated at a later date." WWE also plans to make the U.S. version of the network available on an over-the-top Internet basis starting Aug. 12 in over 170 countries, including Australia, New Zealand, Hong Kong, Singapore, Mexico, Spain, the Nordic countries and others.

"We are very pleased with the performance of the WWE Network," CFO George Barrios said on the conference call.

Must Read: Here's Why the WWE Network Is a 'Groundbreaking Event'

WWE announced a new pricing structure for the network, which had previously been $9.99 a month with a six-month commitment. Starting in August, it will cost $19.99 a month with no commitment, and an upfront one-time payment option for its existing $9.99-per-month offering, which still requires users to subscribe for six months.

On the conference call, CEO Vince McMahon said the new pricing options will help evolve the network, as will its marketing and awareness.

Shares were soaring in Thursday trading, gaining 6.9% to $12.92 as of noon.

During the second quarter, the Stamford, CT.-based WWE lost 19 cents a share on $156.3 million in sales, led by its media division, which saw a 7% year-over-year increase in revenue to $97.7 million, thanks to the WWE Network and increased television licensing fees. Analysts surveyed by Capital IQ were expecting a loss of 20 cents a share on $154.7 million in sales.

The company updated its 2015 OIBDA outlook, saying it has improved by $30 million, due in large part to a 7% staff reduction, helping the company cut costs. WWE will tax a one-time charge of $4.5 million in the third-quarter of 2014 to reflect the reductions.

--Written by Chris Ciaccia in New York

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TheStreet Ratings team rates WORLD WRESTLING ENTMT INC as a Hold with a ratings score of C-. TheStreet Ratings Team has this to say about their recommendation:

"We rate WORLD WRESTLING ENTMT INC (WWE) a HOLD. The primary factors that have impacted our rating are mixed ? some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures and increase in stock price during the past year. However, as a counter to these strengths, we also find weaknesses including feeble growth in the company's earnings per share, deteriorating net income and disappointing return on equity."

Highlights from the analysis by TheStreet Ratings Team goes as follows:
  • Despite its growing revenue, the company underperformed as compared with the industry average of 12.5%. Since the same quarter one year prior, revenues slightly increased by 4.1%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • WWE's debt-to-equity ratio is very low at 0.12 and is currently below that of the industry average, implying that there has been very successful management of debt levels. To add to this, WWE has a quick ratio of 1.51, which demonstrates the ability of the company to cover short-term liquidity needs.
  • Compared to where it was a year ago today, the stock is now trading at a higher level, regardless of the company's weak earnings results. Looking ahead, our view is that this company's fundamentals will not have much impact in either direction, allowing the stock to generally move up or down based on the push and pull of the broad market.
  • The gross profit margin for WORLD WRESTLING ENTMT INC is currently lower than what is desirable, coming in at 32.22%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -6.39% is significantly below that of the industry average.
  • Net operating cash flow has significantly decreased to -$9.37 million or 58.94% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.

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