The media and entertainment industry saw rapid changes with technological advancements and evolving consumer preferences. During the Covid-19 pandemic, people sought more media and entertainment at home, helping online entertainment companies thrive.
While the pandemic has led to a permanent shift in consumer preference, outdoor entertainment companies recovered significantly with the easing of pandemic restrictions.
Moreover, the growing 5G deployment allows the industry participants to strengthen their market presence. When combined with artificial intelligence and virtual reality developments, the new network standard could revolutionize the entertainment industry.
The entertainment market is estimated to reach $642.5 billion by 2029, registering a CAGR of 20.5% from 2022. However, not all stocks are well-positioned to capitalize on the industry tailwinds.
It could be wise to avoid entertainment stocks Warner Bros. Discovery, Inc. (WBD), Chicken Soup for the Soul Entertainment, Inc. (CSSE), and Genius Brands International, Inc. (GNUS), given their weak fundamentals. On the contrary, we think News Corporation (NWSA) is a solid buy now because of its impressive growth prospects.
Stocks to Avoid:
Warner Bros. Discovery, Inc. (WBD)
WBD, a media company, produces, develops, and distributes feature films, television, gaming, and other content in various physical and digital formats through basic networks, direct-to-consumer or theatrical, TV content, and games licensing. It provides content across various distribution platforms in approximately 50 languages worldwide.
For the second quarter ending June 30, 2022, WBD’s total cost and expenses increased 490% year-over-year to $13.47 billion. Its operating loss amounted to $3.64 billion compared to an operating profit of $720.00 million, while its net loss came in at $3.41 billion compared to a net profit of $718.00 million. The company’s loss per share stood at $1.50 compared to an EPS of $1.01.
The consensus EPS estimate of $0.17 represents a year-over-year decline of 38.2% for the third quarter ending September 2022. The company’s shares have plunged 54.7% over the past year and 55.1% over the past six months.
WBD’s POWR Ratings are consistent with this bleak outlook. The stock’s overall F rating translates to Strong Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
WBD is rated a D grade for Quality, Growth, and Sentiment. Within the F-rated Entertainment – Media Producers industry, it is ranked last of 18 stocks.
To see additional POWR Ratings for Value, Stability, and Momentum for WBD, click here.
Chicken Soup for the Soul Entertainment, Inc. (CSSE)
CSSE operates as a streaming video-on-demand (VOD) company in the United States and internationally. It owns and operates various ad-supported and subscription-based VOD networks, including Crackle, Chicken Soup for the Soul, Popcornflix, Popcornflix Kids, Truli, Pivotshare, Españolflix, and FrightPix.
In the second quarter ending June 30, 2022, CSSE’s operating loss increased 115% year-over-year to $16.78 million. Its net loss increased 108.4% from its year-ago value to $18.39 million, while its loss per share increased 76% from its prior-year quarter to $1.39.
The EPS is expected to remain negative in the third quarter ending September 2022. The company’s shares have plunged 48.5% over the past year.
CSSE’s poor prospects are also apparent in its POWR Ratings. The stock has an overall F rating, which equates to a Strong Sell in our POWR Ratings system. It has a D grade for Sentiment, Stability, and Value. CSSE is ranked 17 in the Entertainment – Media Producers industry.
Click here to see the additional POWR Ratings for CSSE (Momentum, Quality, and Growth).
Genius Brands International, Inc. (GNUS)
GNUS, a content and brand management company, creates and licenses multimedia content for toddlers to tweens worldwide. The company offers Rainbow Rangers, an animated series about the adventures of seven magical girls; Llama Llama, an animated series; SpacePop, music and fashion-driven animated property; and other related multimedia.
GNUS’ total operating expenses increased 210% year-over-year to $30.73 million for the second quarter ending June 30, 2022. Its loss from operations grew 13.6% year-over-year to $8.60 million, while its net loss grew 80.5% from its prior-year quarter to $13.43 million. The company’s loss per share rose 100% year-over-year to $0.04.
The stock has declined 48.2% over the past year.
GNUS’ weak fundamentals are reflected in its POWR Ratings. The stock has an overall F rating, equating to a Strong Sell in our proprietary rating system. The stock has an F grade for Value and a D for Stability and Quality. In the same industry, it is ranked #16.
In addition to the POWR Ratings grades I have just highlighted, you can see the GNUS rating for Growth, Value, Sentiment, and Momentum here.
Stock to Buy:
News Corporation (NWSA)
NWSA, a media and information services company, creates and distributes authoritative and engaging content and other products and services for consumers and businesses worldwide. It has six operational segments: Digital Real Estate Services, Subscription Video Services, Dow Jones, Book Publishing, News Media, and Other.
In June, NWSA announced the completion of the acquisition of the Base Chemicals business from S&P Global Market Intelligence. The business will function under the name Chemical Market Analytics by OPIS, a Dow Jones company. NWSA acquired OPIS (the Oil Price Information Service) and related assets from S&P Global and IHS Markit in February.
NWSA’s net revenue increased 7.3% year-over-year to $2.67 billion for the fourth quarter ended June 31, 2022. Its net income amounted to $110.00 million compared to a net loss of $14.00 million in the prior period. The company’s EPS came in at $0.19 compared to a net loss of $0.02 in the previous period.
The consensus EPS estimate of $0.18 for the third quarter ending March 2023 represents a 14.6% year-over-year growth. Analysts expect revenue to increase 2% year-over-year to $2.55 billion for the first quarter ending September 2022. The company’s shares have surged 3.4% over the past month.
NWSA’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our rating system. The stock also has a B grade for Sentiment. Within the same industry, it is ranked first.
In total, we rate NWSA on eight different levels. Beyond what we’ve stated above, we have also given NWSA grades for Value, Growth, Momentum, Quality, and Stability. Get all the NWSA ratings here.
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WBD shares rose $0.14 (+1.10%) in premarket trading Tuesday. Year-to-date, WBD has declined -49.57%, versus a -12.40% rise in the benchmark S&P 500 index during the same period.
About the Author: Spandan Khandelwal
Spandan's is a financial journalist and investment analyst focused on the stock market. With her ability to interpret financial data, she aims to help investors evaluate the fundamentals of a company before investing. More...
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