Manchester United Is Unlikely to Score an Earnings Goal Thursday

Among only a handful of listed global sports clubs, Manchester United (MANU) carries a glorious legacy of 138 years and 62 trophies.

Manchester United is also the world's most prominent sports brand, given the immense popularity that the game enjoys across the world.

Thursday promises to be an important tipping point for the stock that is more than 16% this year, as investors prepare for the release of fiscal first-quarter earnings.

It is important to remember that most sports teams find favor on Wall Street not particularly because of their numbers. A love of the game, its icons and players associated with the sport draw investor consideration.

But there are better investments.

Manchester United, Liberty Media (Atlanta Braves), Madison Square Garden (New York Knicks, New York Liberty and New York Rangers) and Roger Communications (Toronto Blue Jays, Toronto Maple Leaves and Toronto Raptors ) are among this rare breed of sports franchise investment options.

Analysts are suggesting a staid quarter for this $2.45 billion soccer powerhouse, a 7.3% drop in sales accompanied by a sharp decline in earnings numbers.

Manchester United expects revenue in the range of £530 to £540 million, and adjusted earnings before interest, taxes, depreciation and amortization of £170 to £180 million for the full fiscal year.

That would be a far cray from the fiscal fourth quarter, when sales spiked by 27.1% from a year earlier, along with a slim but positive rise in earnings per share.

Manchester United's business model is sharply focused on robust content generation, akin to Formula 1, Nascar, the NBA or the NFL.

As a result, broadcasting revenue makes up a significant chunk of commercial sales. In fact, match-day contributions are far lower.

Therefore, the company operates like a mainstream media enterprise where advertising revenue is the primary income driver, while subscription sales are small.

Inextricably linked to the fortunes of the English Premier League, Manchester United's shares profit from several sources: bespoke content, live games, retail, sponsorship and venue.

The rise of German, Spanish and other European football leagues is however, a threat to Manchester United's long-term prospects. Despite these challenges, Manchester United continues to surge forward, recently striking a successful deal with Adidas that expires in 2025

In addition, player developments are a bit worrisome. Manchester United has invested heavily in players who haven't delivered the goods.

Angel Di Maria and Radamel Falcao were pegged to be star performers and failed to make a dent, with Manchester United bearing large losses, and they were then traded. Midfielder Bastian Schweinsteiger is another source of concern.

Manchester United boss Jose Maurinho could face a similar predicament with Paul Pogba, who was signed for £89 million transfer.

The bottom line is clear: Manchester United won't reflect a solid uptick in earnings and revenue until 2018.

At the moment, valuation concerns persist, unless Manchester United can surprise on the earnings front.

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The author is an independent contributor who at the time of publication owned none of the stocks mentioned.

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