A difficult first half of the year for US media stocks has come to a merciless end.
Stock sell-offs and analyst downgrades have been a regular feature of the year for media and entertainment giants so far. And Netflix’s surprising first-quarter subscriber drop 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 incessant structural shift to ubiquitous streaming TV platforms – inflation-induced recession fears have sparked concerns about a blow to ad revenue and speculation about how much online video-on-demand subscriptions consumers will pay at the same time.
So it’s no surprise that most stocks in the Hollywood sector fell mid-year, and many have seen declines larger than the 20 percent drop in the broader S&P 500 stock index. A rare addition to the media space is WWE, the sports entertainment powerhouse, which is up 25.5 percent since the start of the year.
Analysts have cited a potential financial benefit and upcoming content rights negotiations in the US as potential benefits to the stock. And even recent news that the company was investigating chairman and CEO Vince McMahon — who stepped aside to make way for daughter Stephanie McMahon as the new CEO — and another executive for “alleged misconduct” hasn’t dented shares too much halfway through. from 2022. Morgan Stanley analyst Benjamin Swinburne raised his WWE price target from $60 to $75 before that news “to be more in line with where we see fair value.” However, he maintained his “equal weight” rating, “because consensus estimates appear to reflect a reasonable baseline for the US rights renewal at the end of ’24,” while increasing his “bull case value” to $100.
Meanwhile, Fox Corp., Paramount Global, AMC Networks, satellite radio giant SiriusXM and cinema players Cinemark and Imax are among the sector stocks that will be caught in the market’s downward movement by mid-2022. Shares of Fox, which many on Wall Street see as an upside-down sports betting gamble, are down 11 percent (Class A) or 12 percent (Class B). And shares of AMC Networks, the You better call Saul network that has a growing niche streaming business is down 15.4 percent.
Elsewhere, Paramount Global, whose streaming gains have surprised some, has lost 16.5 percent in share value this year. Shares in Imax, which appeared to be isolated from stop-go box office recovery for Hollywood tent poles by going without expensive real estate assets, fell just 6.7 percent, while the stock in Cinemark fell 8 percent in the half. while SiriusXM’s stock outperformed the market during the half year, declining just 4 percent.
Netflix’s slump in stock – down 70 percent in value so far this year following the media sector’s most significant price increases in recent years – is a wake-up call for the streaming space. Since the big disappointment with its first quarter results, stock in the video streaming giant has been hit by Wall Street analysts who cut their price targets and cut Netflix to “sell” ratings.
For example, Benchmark analyst Matthew Harrigan downgraded Netflix to “sell” on June 14, explaining: “We are skeptical of an ongoing recovery in Netflix stock, even as bulls talk about the 14.1 times future price/earnings of Netflix. the consensus estimates for 2023 (15.4 times per benchmark).” He also noted that “a problem is moderating growth,” pointing to free cash flow trends, for example.
A few days earlier, Goldman Sachs’ Eric Sheridan downgraded Netflix to “selling” 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 competition on demand trends, margin expansion, and content spend levels.”
Netflix, for the Goldman Sachs analyst, is suddenly “a show-me-story”. Wells Fargo analyst Steven Cahall also described Netflix as a waning force in mid-June, as he summed up: “The buyside is bearish for Q2 on Netflix in terms of sub-ads/churn.”
Hollywood conglomerates have outperformed Netflix, but Walt Disney shares are down 38 percent so far in 2022, fearing a cut in consumer discretionary spending will mean fewer people will visit a theme park or the local multiplex. The shares of Warner Bros. Discovery are down 44 percent to $24.08 since its post-merger market debut in early April, and Sony’s US-listed shares are down 34 percent.
“Disney is a complete bull-bear debate,” Wells Fargo’s Cahall wrote in a June 17 report. “While it may not feel like it, we spoke to countless Disney bulls who think” [theme] parks will hold up better than recession fears imply, and content will support stronger Disney+ sub-growth in [the] scheme [year] second half. Bears point to the sub/profitability in streaming here, recession risk and the view of CEO turmoil.”
Meanwhile, Cahall summed up investor sentiment on the merged Warner Bros. Discovery put together as follows: “Everyone agrees that Warner Bros. Discovery is too cheap, and most agree that they said that $5-$10 a share ago. The long-term suggests a positive development, but the “The short term is clouded by concerns over estimate revisions and natural growing pains. No one wants to face an investor day, and the timing of such an event is unknown.”
Smaller and more focused entertainment companies have also failed to overcome negative market trends this year. Shares of Lionsgate are down 43 percent — with the studio’s Starz planned spin-off this summer, expected to test the value of streaming platforms today. Endeavor has lost 40 percent of its value in the past six months, even as its sports, media and entertainment events — including WME and the mixed martial arts organization UFC — have bounced back after the pandemic.
Pay TV giants have faced challenges of their own in the past year, with Comcast shares falling 22 percent and Charter Communications shares falling 30 percent. A key driver here was concerns about slowing broadband subscriber growth momentum. “Many investors think the cable sell-off appears to be largely over, but then another negative data point comes in,” Cahall argued. “Valuations are close to telcos, and that doesn’t seem right to many given the structural advantages in broadband markets.”
And despite some recent box office successes, such as: Top Gun: Maverickthe largest cinema stocks are lagging behind late 2021 closing prices. Memestock-powered AMC Theaters has lost 51 percent over the first half of the year, while London-listed Regal owner Cineworld has fallen 33 percent. .
Macquarie analyst Tim Nollen has suggested investors to stay on the sidelines when it comes to most entertainment biggies. “We remain ‘neutral’ on media networks, with Disney and Warner Bros. Discovery our only ‘outperforms’,” he wrote in a recent report. On the latter he said about Warner Bros. Discovery: “The newly combined company has the potential to create a global powerhouse in direct-to-consumer streaming.”