With a sluggish stock price and talk of taking the company private, Endeavor Group Holdings missed Wall Street earnings expectations after reporting a net loss of $116 million, or a loss of 25 cents per diluted share, for its third quarter of 2023, widening from a loss of $12.5 million, or 4 cents per diluted share a year ago.
However, the talent and media agency holding company beat revenue expectations for the quarter with $1.34 billion, up 12% from $1.2 billion in the year-ago period.
Analysts surveyed by Zacks Investment Research were expecting earnings of 27 cents per share on revenue of $1.26 billion. Endeavor shares fell 4.9% in pre-market trading on Wednesday following the earnings announcement.
Endeavor’s Owned Sports Properties segment, which includes the recently formed TKO Group Inc., saw revenue climb 19.3% year over year to $479.7 million, while adjusted EBITDA for the segment jumped 21.3% to $237.4 million. The growth was driven by higher media rights fees from contractual increases, two additional Fight Nights in the quarter, higher live event revenue, and increases in sponsorships and site fees. The sports segment also booked $52 million of revenue from Endeavor’s acquisition of the World Wrestling Entertainment. Revenue for the segment was partially offset by $33 million included in the same prior year period from Diamond Baseball Holdings, which Endeavor sold in September 2022.
Another notable bright spot was the Sports, Data & Technology segment, which saw revenue grow 167% year over year to $124.8 million, driven by the inclusion of OpenBet, which Endeavor acquired in September 2022, and growth at IMG Arena. Adjusted EBITDA for the segment surged 477% year over year to $24 million.
However, revenue in the Events, Experiences & Rights segment, revenue fell 6.9% year over year to $367.1 million and adjusted EBITDA fell 34.4% year over year to $29.8 million. The segment’s revenue decline was impacted by the $1.25 billion sale of IMG Academy in June, partially offset by new contracts in IMG’s media production business, certain biennial and quadrennial events like the Ryder Cup and Rugby World Cup, and live event revenue from Barrett-Jackson New Orleans, as well as the acquisition of The Armory Show in July.
In the Representation segment, revenue fell 0.7% year over year to $385.6 million and adjusted EBITDA fell 27.5% year over year to $36.6 million. The revenue dip reflected the impact of the Writers Guild of America and SAG-AFTRA strikes, which was partially offset by the music and sports verticals at William Morris Endeavor and the delivery of projects in Endeavor’s non-scripted content production business, as well as increases at 160over90, including the acquisition of London-based experiential marketing agency XYZ.
During Endeavor’s third quarter earnings call on Wednesday, Emanuel said he hoped that the SAG-AFTRA strike would be resolved in the “next couple of days.” He expects that TV and film productions will need time to regroup before getting back up and running, with filming likely to resume in the early part of 2024.
“There’s tons of pent-up demand, lots of stuff on the runway,” he said.
President Mark Shapiro said he and Emanuel had hoped the strike would be resolved by this morning. “Let’s hope that by the time we get to Disney, that’s the case,” he said, referring to the Walt Disney Company’s scheduled earnings report scheduled for Wednesday afternoon.
Chief financial officer Jason Lublin estimated the strikes had a negative impact of $40 million to $50 million in the third quarter.
“We expect the originally estimated impact of the strike to continue, based on the lagging effect of the WGA strike, the ongoing SAG-AFTRA strike as well as the time needed to ramp production,” Lublin told analysts.
Emanuel pointed to the “well-roundedness” of Endeavor’s overall portfolio while arguing that his company and many of his rivals were “insulated” from some of the financial consequences related to the strikes. He said licensing deals for shows like “Ballers” and “Suits,” both of which have had successful runs on Netflix, delivered “huge fees” and would likely continue to aid the conventional representation business.
The latest quarterly results come after Endeavor’s Ultimate Fighting Championship closed its merger with World Wrestling Entertainment in September to form TKO Group Inc. Endeavor holds a 51% controlling interest in the new company and existing WWE shareholders will hold a 49% interest in the new company. The deal, which was first announced in April, values UFC at $12.1 billion and WWE at $9.3 billion.
“Our results in the third quarter demonstrate the strength of our diversified portfolio and leading position in sports and entertainment,” Endeavor CEO Ari Emanuel said in a statement. “We are making good progress on our TKO integration efforts, setting ticket sales or attendance records at many of our live events, and continuing to benefit from demand for premium content and experiences.”
Looking ahead, the company said it repurchased up to $300 million in Class A common stock in the third quarter, and recently announced it was evaluating strategic alternatives. As part of the review, Endeavor said it would not consider the sale or disposition of its interest in TKO Group.
Silver Lake, which controls approximately 71% of Endeavor’s voting stock, has said it is working on a proposal to take the company private. The private equity firm emphasized that it “firmly believes in Endeavor’s business and is not interested in selling its shares in Endeavor to a third-party nor in entertaining bids for assets that are a part of Endeavor.”
As of the end of the third quarter, Endeavor had $1.34 billion in cash and cash equivalents and $5.05 billion total debt, compared to $1.62 billion in cash and cash equivalents and $5.1 billion in total debt during the previous quarter.
