Due to rapid technological advancements, the media and entertainment industry has evolved dramatically in recent years. With progress in 5G deployment, industry participants aim to strengthen their market presence because when paired with developments in artificial intelligence and virtual reality, the new network standard could revolutionize the entertainment industry. The global entertainment market is expected to reach $38.72 billion by 2025, growing at a 4% CAGR.
Despite the favorable backdrop, leading movie theater chain operator AMC Entertainment Holdings Inc. (AMC) hasn’t been able to keep up with industry trends. Consequently, AMC’s net loss came in at $566.9 million in its last reported quarter, and its operating loss was $427.8 million. Although the stock is up 1560.4% so far this year due to retail investors’ social-media-triggered interest, we think its excessively stretched valuation could lead to a downtrend in the near term.
In contrast, top entertainment companies Comcast Corporation (CMCSA), Sony Group Corporation (SONY), and Activision Blizzard Inc. (ATVI) will likely experience a surge in demand because they are investing extensively in R&D to introduce new games and entertainment platforms aligned with consumer interest. Therefore, we believe these stocks are better bets than AMC.
Comcast Corporation (CMCSA)
CMCSA is a global media and technology corporation that is headquartered in Philadelphia, Pa. Cable Communications; Cable Networks; Broadcast Television; Filmed Entertainment; Theme Parks; and Sky are the business segments through which the company operates. In addition, it owns the Philadelphia Flyers and the Wells Fargo Center arena in Philadelphia and offers streaming services such as Peacock.
Last month, CMCSA initiated a $15 million project in Hubbard and Woodburn, Oregon, to deliver its entire range of home and corporate internet products and services. Through this strategic growth plan, the company aims to expand its footprint across the country.
CMCSA’s revenue increased 20.7% year-over-year to $28.55 billion in the second quarter, ended June 30, 2021. Its operating income surged 18.5% year-over-year to $5.51 billion. The company’s net income increased 25.1% from its year-ago value to $3.74 billion over this period. CMCSA’s EPS increased 23.1% year-over-year to $0.80.
The company’s EPS is expected to grow 13% year-over-year to $2.95 in the current year. In addition, analysts expect CMCSA’s revenue to increase 9.3% from its year-ago value to $113.24 billion in the current year. CMCSA’s stock has gained 36.6% over the past year and 41.2% over the past nine months.
CMCSA’s POWR Ratings reflect this promising outlook. The company has an overall B rating, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
CMCSA has also been rated a B grade for Stability, Sentiment, and Quality. In addition, within the Entertainment – TV & Internet Providers industry, it is ranked #1 of 9 stocks.
To see additional POWR Ratings for Growth, Value, and Momentum for CMCSA, click here.
Sony Group Corporation (SONY)
Leading technology and entertainment conglomerate SONY develops, manufactures, and sells various electronic equipment for the consumer, professional, and industrial sectors. In addition, the company is involved in the administration and licensing of song lyrics and music and creating and distributing animated films. It is also known for producing films, television content, and digital networks.
This month, the Tokyo-based company’s board of directors announced the company’s share repurchase program, under which SONY has repurchased approximately 722,800 shares of its stock between June 1 and June 30, 2021. This decision demonstrates its strong business outlook and ability to maintain a solid balance sheet.
In its fiscal year ending March 31, 2021, SONY’s net sales have increased 9% year-over-year to ¥9 billion ($81.26 billion). Its operating income grew 15% year-over-year to ¥971.87 billion ($8.78 billion). The company’s net income increased 101.3% from the year-ago value to ¥1.17 billion ($10.58 billion) over this period.
The company’s EPS is expected to grow 16.8% year-over-year to $6.48 next year. Analysts expect SONY’s revenue to increase 6.9% year-over-year to $91.06 billion in its fiscal year 2023. Also, the stock has surged 33.9% over the past year and 22.1% over the past nine months.
SONY’s strong fundamentals are reflected in its POWR Ratings. The stock has a B grade for Sentiment and Stability. In the Entertainment – Media Producers industry, it is ranked #5 of 17 stocks.
In total, we rate SONY on eight different levels. Beyond what we’ve stated above, we have also given SONY grades for Growth, Value, Momentum, and Quality. Get all the SONY ratings here.
Activision Blizzard Inc. (ATVI)
ATVI in Santa Monica, Calif., produces and publishes interactive entertainment content and services worldwide. Activision Publishing, Inc.; Blizzard Entertainment Inc.; and King Digital Entertainment are the company’s three operational segments. The company’s most popular product franchises include Call of Duty, World of Warcraft, Diablo, Hearthstone, Overwatch, and Candy Crush.
During the first quarter, ended March 31, 2021, ATVI’s revenue increased 27.2% year-over-year to $2.28 billion. Its operating income rose 29.9% from its year-ago value to $795 million. Its net income increased 22.6% year-over-year to $619 million, while its EPS grew 21.5% from the prior-year quarter to $0.79.
A $3.77 consensus EPS estimate for the current year represents an 8.6% increase year-over-year. The $8.77 billion consensus revenue estimate for the current year represents a 4.2% increase from the same period last year. The stock has gained 8.3% over the past nine months.
It is no surprise that ATVI has an overall B rating, which equates to Buy in our POWR Ratings system. The stock also has a B grade for Value, Sentiment, and Quality. Within the Entertainment – Toys & Video Games industry, it is ranked #4 of 22 stocks.
In addition to the POWR Ratings grades we have just highlighted, you can see the ATVI ratings for Growth, Stability, and Momentum.
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CMCSA shares were trading at $57.43 per share on Tuesday morning, down $1.04 (-1.78%). Year-to-date, CMCSA has gained 11.08%, versus a 17.78% rise in the benchmark S&P 500 index during the same period.
About the Author: Pragya Pandey
Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate. More...
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