A tough first half of the year for US media stocks has ruthlessly come to an end.
Stock sell-offs and analyst downgrades have been a regular feature of the year to date for media and entertainment giants. And Netflix’s surprise subscriber decline in the first quarter has only raised questions about whether Hollywood’s broader streaming pivot will pay off over time.
And in the shorter term, amid the industry’s relentless structural shift toward ubiquitous streaming TV platforms, inflation-induced recession fears have raised concerns about a hit to ad revenue and speculation about how many video subscriptions to online order will pay consumers at the same time. weather.
So it’s no surprise that most stocks in the Hollywood sector were down by midyear, with many posting declines greater than the 20 percent drop in the broader-based S&P 500 stock index. A rare winner in the media space is sports-entertainment powerhouse WWE, which is up 25.5 percent year-to-date.
Analysts have cited financial upside potential and upcoming US content rights negotiations as possible upside for the stock. And even recent news that the company was investigating chairman and CEO Vince McMahon, who stepped aside to make way for his daughter Stephanie McMahon as the new CEO, and another executive for “alleged misconduct” hasn’t done much. dent in stock too midway. 2022. Morgan Stanley analyst Benjamin Swinburne raised his WWE price target from $60 to $75 prior to that news “to be more in line with where we see fair value.” However, he maintained his “equal weight” rating, “as consensus estimates appear to reflect a reasonable base-case assumption for the company’s re-rights in late 2024 in the US.”
Meanwhile, Fox Corp., Paramount Global, AMC Networks, satellite radio giant SiriusXM and movie players Cinemark and Imax are among the sector stocks that will be caught up in the market’s downdraft in mid-2022. Shares of Fox, which many on Wall Street see as a sports betting bet on the upside, are down 11 percent (Class A) or 12 percent (Class B). And shares of AMC Networks, the Better call Saul network which has a growing niche streaming business, are down 15.4 percent.
Separately, Paramount Global, whose streaming earnings have surprised some, has lost 16.5 percent in stock value this year. Shares of Imax, which appeared to be insulated from the intermittent recovery in Hollywood box offices by shedding expensive real estate assets, fell just 6.7 percent, while shares of Cinemark fell 8 percent in the run-up. half a year, while SiriusXM shares outperformed the market at the half-year mark down just 4 percent.
The sharp decline in Netflix shares, which are down 70 percent in value so far this year after leading key media sector share price gains in recent years, is a wake-up call for the transmission space. Since the big disappointment of first-quarter results, shares of the streaming video giant have taken a hit as Wall Street analysts lowered their price targets and downgraded Netflix’s ratings to “sell.”
For example, Benchmark analyst Matthew Harrigan cut Netflix to “sell” on June 14, explaining, “We’re skeptical of any sustained recovery in Netflix stock, even as bulls are (or were) talking about its price.” / forward earnings of 14.1 times vs. 2023 consensus estimates.” (15.4 times by Benchmark).” He also noted that “one problem is moderating growth,” pointing to trends in free cash flow, for example.
A few days earlier, Goldman Sachs’ Eric Sheridan downgraded Netflix to “sell” and lowered its revenue forecasts for 2022 and 2023, while lowering its price target from $265 to $186. Sheridan cited “concerns about the impact of a consumer recession, as well as heightened levels of competition in demand trends, margin expansion and levels of content spending.
Netflix, for the Goldman Sachs analyst, is suddenly “a story to show me.” Wells Fargo analyst Steven Cahall in mid-June also described Netflix as a waning force, as he summarized: “The buy side is bearish for Q2 on Netflix in terms of sub-adds/dropouts.”
Hollywood conglomerates have held up better than Netflix, but Walt Disney shares are still down 38 percent so far in 2022 on fears a cut in discretionary consumer spending will drive fewer people to visit a park. theme or local cinema. Shares of Warner Bros. Discovery have fallen 44 percent since their post-merger market debut in early April at $24.08, and US-listed shares of Sony are down 34 percent. hundred.
“Disney is a complete bulls-and-bears debate,” Wells Fargo’s Cahall wrote in a June 17 report. “While it may not seem like it, we talked to numerous Disney bulls who think [theme] parks will hold up better than recession fears imply, and content will support further growth of Disney+ subs in [the] calendar [year] 2nd half Bears point to under/tradeoff profitability in streaming from here, recession risk and CEO turmoil optics.”
Meanwhile, Cahall summed up investor views on the Warner Bros. Discovery merger this way: “Everyone agrees that Warner Bros. Discovery is too cheap, and most agree that they said it makes $5- $10 per share. The long term suggests an upside, but the short term is clouded by concerns about revised estimates and growing pains from the natural meltdown. No one wants to be in front of an investor day, and the timing of such an event remains to be determined.”
Smaller, more focused entertainment companies have also failed to overcome negative market trends so far this year. Shares of Lionsgate are down 43 percent, and Starz’s planned spin-off of that studio this summer is expected to test the value of streaming platforms these days. And Endeavor has lost 40 percent of its value in the past six months, even though its sports, media and entertainment events business, which includes WME and the UFC mixed martial arts organization, has returned post-pandemic. .
The pay-TV giants have faced their own challenges in the year to date, with Comcast shares down 22 percent and Charter Communications shares down 30 percent. A key factor here has been concerns about slowing broadband subscriber growth. “A lot of investors think the cable sell-off feels largely done, but then a new negative data point comes along,” Cahall argued. “Valuations are close to parity with telcos, and that doesn’t seem right to many given the structural advantages in broadband markets.”
And despite some recent blockbusters, like Top Gun: Maverickthe largest movie stocks are lagging year-end 2021 stock prices. Memestock-powered AMC Theaters has lost 51 percent over the course of the first half of the year, while London-listed shares of Regal owner Cineworld are down 33 percent.
Macquarie analyst Tim Nollen has suggested that investors steer clear when it comes to most of the big names in entertainment. “We remain ‘neutral’ on media networks, with Disney and Warner Bros. Discovery as our only ‘outcomers,’” he wrote in a recent report. On the latter, he said of Warner Bros. Discovery: “The newly combined company has the opportunity to create a global powerhouse in direct-to-consumer broadcasting.”