The media and entertainment industry continues to grow significantly due to ongoing trends, disruptions within the industry, and behavioral changes brought about by the pandemic. The pandemic has sparked a shift toward remote living, increasing demand for gaming, streaming services, and user-generated content.
According to Statista, the Entertainment market in the United States is expected to grow at a CAGR of 7.7% to reach revenue of $10.01 billion in 2026, while the total revenue in the Entertainment segment worldwide is projected to reach $40.74 billion, growing at a CAGR of 8.5%.
Nevertheless, discretionary spending is anticipated to decrease due to rising interest rates and other macroeconomic challenges. After adjusting for inflation and seasonality, consumer spending has grown more slowly in the third quarter than in the second.
Furthermore, the Fed’s continued rate hikes, albeit slower, to fight inflation could slow down investment, hiring, and consumption.
Given the industry’s long-term growth prospects, fundamentally strong and quality stock AMC Networks (AMCX) might be a solid buy. However, given the near-term macroeconomic headwinds, fundamentally weak and beaten-down stocks The Walt Disney Company (DIS), Warner Bros. Discovery, Inc. (WBD), and Dolphin Entertainment, Inc. (DLPN) might be best avoided now.
Stock to Buy:
AMC Networks Inc. (AMCX)
AMCX is an entertainment company that owns and manages various video entertainment products made available to the audience via social media and linear networks. The company operates in two segments, Domestic Operations; and International and Other.
On November 3, AMCX announced an expanded partnership with Roku Inc (ROKU) that will showcase AMCX’s top-notch content and targeted streaming services throughout The Roku Channel’s expansive and expanding ecosystem.
This partnership will contribute to AMCX’s strategic goal of distributing and windowing its high-quality content across a coordinated ecosystem that will include AMCX’s own networks, streaming services, and prominent partner platforms.
For nine months ended September 30, 2022, AMCX’s operating income increased 12.3% year-over-year to $478.56 million. Net income attributable to AMCX stockholders came in at $272.28 million, a 16.6% increase year-over-year. Also, net income per share attributable to AMCX stockholders grew 15.6% from the previous year to $6.23.
Analysts expect AMCX’s revenue for the fiscal 2022 fourth quarter ending December 2022 to increase 16.6% year-over-year to $936.80 million. The company’s EPS for the ongoing quarter is expected to increase 137.9% from the year-ago value to $1.28. The stock declined 0.5% intraday to close its last trading session at $20.91.
AMCX’s POWR Ratings reflect its promising outlook. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each weighted to an optimal degree.
The stock has a B grade for Value and Quality. Within the Entertainment – Media Producers industry, it has topped among 16 stocks.
Click here to see the additional POWR Ratings of AMCX for Growth, Momentum, Stability, and Sentiment.
Stocks to Avoid:
The Walt Disney Company (DIS)
DIS is a multinational entertainment corporation. It operates in two segments, Disney Media and Entertainment Distribution; and Disney Parks, Experiences, and Products. The business runs television broadcast networks and produces comic books, producing and distributing episodic film and television content.
DIS warns that strong streaming growth for its Disney+ platform may slow down in the future after falling short of estimates for profit and key revenue sectors during the fiscal fourth quarter. The streaming segment had combined losses of $1.50 billion. Furthermore, the company cautioned that hiring freezes and layoffs are potential outcomes as it works to control its spending.
For the fourth quarter of fiscal 2022 ended October 1, 2022, DIS’ revenue for Disney Media and Entertainment Distribution segment decreased 3% from the year-ago value to $12.72 million, while its operating income from the same segment declined 91% year-over-year to $83 million.
In addition, the company’s EPS, excluding certain items, came in at $0.30, a 19% decline year-over-year. DIS’s free cash flow declined 10% year-over-year to $1.37 billion.
For the fiscal 2023 first quarter ending December 2022, analysts expect EPS to decline 25.1% to $0.79. The stock has slumped 4.3% over the past month and 36.9% year-to-date to close the last trading session at $98.87.
DIS’s poor prospects are also apparent in its POWR Ratings. The stock has an overall rating of D, which equates to a Sell in our proprietary rating system.
The stock has a D grade for Value and Quality. Within the Entertainment – Media Producers industry, it is ranked #12 of 16 stocks.
Beyond what we stated above, we also have DIS ratings for Stability, Momentum, Sentiment, and Growth. Get all DIS ratings here.
Warner Bros. Discovery, Inc. (WBD)
As a leading media and entertainment company, WBD offers the most diverse selection of brands, franchises, and content across television, movies, streaming, and video games in more than 50 languages.
Profitability remains a subject of concern for investors as their confidence in streaming fundamentals dwindles. WBD lowered its earlier projection of $10 billion and now expects adjusted EBITDA for 2022 to be between $9 and $9.50 billion.
Furthermore, there has been a 10% reduction in the WBD sports staff. Prior to this, 14% of HBO and HBO Max staff were let off in August, and 26% of personnel in the scripted, unscripted, and animation departments were laid off in October.
WBD’s Sports Chair & CEO, Luis Silberwasser, thinks the business had to make changes to maintain its position as a major player in the sports media industry.
For the third quarter of fiscal 2022 ended September 30, WBD’s costs and expenses increased 325.8% year-over-year to $12.01 billion. The company reported an operating loss of $2.19 billion, compared to an operating income of $329 million in the prior-year quarter.
Also, the Net loss available to WBD came in at $2.31 billion and $0.95 per share, compared to a net income of $156 million and $0.24 per share a year ago.
Analysts expect WBD’s loss per share of $0.13 for the fiscal 2022 fourth quarter (ending December 2022). Moreover, the company is expected to report a loss per share of $1.56 for the current fiscal year.
The stock has slumped 13.2% over the past month and 54.7% year-to-date to close the last trading session at $11.47.
WBD’s POWR Ratings are consistent with this bleak outlook. The stock has an overall F rating, equating to a Strong Sell in our proprietary rating system.
The stock has an F grade for Sentiment and a D for Stability and Quality. Within the F-rated Entertainment – Media Producers industry, it is ranked #15 of 16 stocks.
Click here to see the additional rating of WBD for Growth, Value, and Momentum.
Dolphin Entertainment, Inc. (DLPN)
DLPN is an entertainment marketing and content development business that provides strategic marketing and publicity services to A-list celebrities, digital content providers, and a range of film studios. Its segments include Entertainment Publicity and Marketing Segment (EPM); and Content Production Segment (CPD).
For the fiscal 2022 third quarter ended September 30, DLPN’s total expenses increased 5.4% from the prior year to $11.03 million. The company’s loss from operations widened 5.8% year-over-year to $1.13 million. The company reported a net loss of $1.31 million, compared to a net income of $141,651 in the previous year’s quarter.
Furthermore, the company reported a loss per share of $0.14 versus EPS of $0.02 in the prior-year period.
For the current fiscal year ending December 2022, analysts expect DLPN’s loss per share of $0.14. Also, the company is expected to report a loss per share of $0.07 in the next fiscal year.
Shares of DLPN have slumped 19.7% over the past month and 73.1% over the past year to close the last trading session at $2.49.
DLPN’s POWR Ratings reflect its bleak prospects. The stock has an overall rating of D, which equates to a Sell in our proprietary rating system.
The stock has an F grade for Quality and a D for Value. Within the Entertainment – Media Producers industry, it is ranked #18 of 16 stocks.
To see additional POWR Ratings for Growth, Momentum, Sentiment, and Stability for DLPN, click here.
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DIS shares were trading at $95.95 per share on Monday afternoon, down $2.92 (-2.95%). Year-to-date, DIS has declined -38.05%, versus a -15.60% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions. More...
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