Entertainment and Media Stocks Lost in First Half – The Hollywood Reporter

A rough first half of the year for US media stocks came to a ruthless end.

Stock sell-offs and analyst downgrades have been commonplace this year for media and entertainment giants. And Netflix’s unexpected drop in first-quarter subscribers has only raised the question of whether wider Hollywood streaming will pay off over time.

And in the near future — amid the industry’s ongoing structural shift towards ubiquitous TV streaming platforms — fears of an inflation-driven recession have led to fears of a hit to advertising revenue and speculation about how much online video-on-demand subscriptions consumers will pay for. in the same time. time.

So it’s not surprising that most Hollywood sector stocks have fallen at mid-year levels, with many of them dropping more than the 20 percent drop in the broader S&P 500 stock index. A rare player in the media space is sports entertainment company WWE. which has grown by 25.5% since the beginning of the year.

Analysts cited potential financial growth and upcoming U.S. content rights talks as potential benefits for the stock. And even the recent news that the company is investigating chairman and CEO Vince McMahon, who stepped aside to make way for daughter Stephanie McMahon as new CEO, and another executive for “alleged misconduct,” doesn’t too much impact on stocks in the middle of the road. 2022. Morgan Stanley analyst Benjamin Swinburne raised his WWE price target from $60 to $75 prior to the news “to be more in line with where we see fair value.” However, he retained his “equilibrium” rating “as the consensus estimates appear to reflect a reasonable underlying assumption for the company’s year-end renewal in the US” while he raised his “bull value” to 100 dollars.

Meanwhile, shares of Fox Corp., Paramount Global, AMC Networks, satellite radio giant SiriusXM, and movie players Cinemark and Imax are among the companies that will experience a market downturn in mid-2022. Fox stock, which many on Wall Street consider sports betting gambling down 11 percent (Class A) or 12 percent (Class B). And shares of AMC Networks, Better call Saul the network, which has a growing niche streaming business, fell 15.4%.

Shares of Paramount Global, whose streaming growth surprised some, have shed 16.5% this year. Imax stock, which appeared to be protected from the Hollywood tent box office recovery by divesting high-priced real estate assets, fell just 6.7 percent, while Cinemark stock fell 8 percent in the semi-annual phase, while SiriusXM shares outperformed the market on a semi-annual basis, down just 4 percent.

The sharp drop in Netflix stock — it has fallen 70 percent this year after stocks in a key media sector have surged in recent years — is a wake-up call for the streaming space. After a major disappointment in its first-quarter results, the streaming video giant’s stock took a hit as Wall Street analysts lowered their price targets and downgraded Netflix to sell.

For example, Benchmark analyst Matthew Harrigan cut Netflix to a “sell” on June 14th, explaining: “We are skeptical of any sustainable recovery in Netflix shares, even as the bulls are (or have been) talking about a 14.1x forward price/earnings.” compared to consensus projections for 2023. (15.4 times the benchmark).” He also noted that “the problem is holding back growth”, pointing to free cash flow trends, for example.

A few days earlier, Goldman Sachs’ Eric Sheridan downgraded Netflix to “sell” and lowered its revenue projections 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 increased levels of competition, on demand trends, margin increases and content spending levels.”

Netflix for a Goldman Sachs analyst has suddenly become a “showcase story.” Wells Fargo analyst Stephen Cahall also described Netflix as a waning force in mid-June, summarizing: “Q2 buyer sidelines on Netflix are bearish in terms of subscriber additions/churn.”

Hollywood conglomerates are holding up better than Netflix, but Walt Disney shares are still down 38% in 2022 on fears that cuts in discretionary consumer spending will result in fewer people visiting a theme park or local multiplex. Warner Brazzers. Discovery’s shares have fallen 44% since its post-merger market debut at $24.08 in early April, while US-listed Sony shares are down 34%.

“Disney is a full blown bull vs. bear controversy,” Cahall of Wells Fargo wrote in a June 17 report. “While it may not seem like it, we have spoken to numerous Disney bulls who think [theme] parks will hold up better than recession fears suggest, and content will fuel stronger Disney+ subscription growth in [the] calendar [year] Second half. The bears point to a trade-off between the low and profitability of streaming from here, the risk of a recession, and the optics of a CEO upheaval.”

Meanwhile, Cahall summed up investors’ views on the combined Warner Bros. Opening thus: “Everyone agrees that Warner Bros. Discovery is too cheap, and most agree that they used to say $5-$10 per share. The long term suggests upside potential, but the short term is clouded by revision concerns and a natural confluence of growth concerns. Nobody wants to be ahead of the investor’s day, and the timing of such an event has not been set.”

Smaller and more focused entertainment companies also failed to overcome negative market trends this year. Lionsgate’s stock fell 43 percent as Starz’s planned spinoff from 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, though its sports, media and entertainment business, which includes WME and the UFC mixed martial arts organization, has rebounded from the pandemic.

The pay-TV giants have faced their own problems 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 a slowdown in broadband subscriber growth. “Many investors believe the cable sell-off is largely over, but then more negative data comes in,” Cahall said. “The valuations are nearly equal with telcos, and to many this seems to be a misnomer given the structural advantages in the broadband markets.”

And despite some recent box office successes like Top Shooter: Maverick, the largest cinema stocks underperform share prices at the end of 2021. Shares of memstock-based AMC Theaters lost 51% during the first half of the year, while London-listed shares of owner Regal Cineworld fell 33%.

Macquarie analyst Tim Nollen suggested that investors stay on the sidelines when it comes to most major entertainment companies. “We remain ‘neutral’ on media networks, with Disney and Warner Bros. Discovery only “wins” with us,” he wrote in a recent report. He spoke of the latter from Warner Bros. Discovery: “The newly merged company has the opportunity to build a consumer-facing global streaming hub.”

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